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IA_Full Page Ads_December_2023.indd   2                                                               11/9/2023   2:24:07 PM","12.23                                     NEW THIS MONTH @ THINkAdvISOr.cOM  TechcenTer live evenTs web exTras direcTories blogs                    7 Ways AI Can Help Advisors With Wealth Management                   As AI becomes more prevalent in the   actionable intelligence that drives growth.  6. Better intelligence on different                  financial industry, adopting its tools and   At TIFIN, we’re deploying some of   investment types: machine learning algo-                  technologies will give financial advisors   these models with larger rIAs and wealth   rithms can be trained on historical market                  a competitive edge. Here are seven key   enterprises to help uncover such insights   data and/or proprietary investment data to                  areas that affect AI’s ability to enhance   as: Which of your prospects most closely   predict future price movements, responses                  the wealth management industry:   resemble your best clients? Are any of   to macroeconomic trends and more. One of                    1. data driving a revolution: In the world   your clients holding a significant portion   the most powerful AI aspects is its ability to                  of wealth management, data strategy has   of their wealth elsewhere that you may   answer basic questions by using predictive                  been a part of most firms for the past   be able to consolidate? Are there oppor-  learning from complex data sets to return                  decade. From investing in cloud platforms,   tunities for your highest-value clients to   easy-to-understand answers that may not                  custodial integrations, customer relation-  generate referrals from within their per-  be apparent to human analysts, leading to                  ship management systems and other soft-  sonal or professional networks?   more informed investment decisions.                  ware-as-a-service solutions, the amount of   4. new revenue channels for advisors   This can prove invaluable when applied                  proprietary wealth management data has   and wealth enterprise firms: AI is not a   to areas like alternative investments or                  never been greater. This will accelerate the   back-office technology but can be applied   other investment types that advisors or                  production of wealth-specific AI solutions,   to the challenges facing a chief growth   their teams may not have expertise in.                  allowing models to be trained in shorter   officer. The right model framework can   As a result, AI creates organic growth                  time frames and generate more accurate   be designed to support growth-focused   opportunities and helps minimize the                  and personalized results.         activities such as lead generation and   need to hire full-time employees with                    2. new models proving to be a game   marketing automation by better scoring   dedicated areas of expertise.                  changer:. Since late 2022, large language   leads, prioritizing prospect lists and find-  7. enhancing compliance and next-                  models have risen to prominence, with AI   ing referral opportunities. This, of course,   best-action for portfolios: AI can assess                  offerings like chatGPT and bard garnering   helps to alleviate some of the burden felt   and quantify risks associated with dif-                  millions of users. For wealth management   by advisors. What’s more, AI can identify   ferent investment types, helping inves-                  firms, this translates to a lower barrier to   lead opportunities in parallel businesses   tors make informed choices that align                  entry for the development of solutions.   such as insurance and plan sponsorships   with their risk tolerance. It can account                  Whether it’s through AI-centric wealth-  to generate efficient, low-cost intercompa-  for macroeconomic factors, geopoliti-                  tech vendors bringing innovative products   ny lead flows for larger wealth enterprises.  cal events and market sentiment when                  to market, or in-house developers build-  5. Growing real-world client relation-  assessing potential risks. It can continu-                  ing solutions for specific firm needs, the   ships: AI can serve as a co-pilot to the mod-  ously rebalance portfolios to maintain                  accessibility and potential applications of   ern wealth manager looking to deliver more   alignment with investment goals. And                  AI are more widespread than ever.   personalized advice based on an individual’s   finally, AI can assist in ensuring compli-                    3. More than just chatbots: When we   financial situation, goals and risk tolerance.   ance with financial regulations by monitor-                  talk about AI, chat assistants often steal   It has the ability to synthesize data from   ing and reporting on investment activities.                  the headlines. However, the use of “preci-  multiple inputs and provide both household-  It should be the goal of all wealth man-                  sion AI” in wealth management can deliv-  specific insights and next-best-action rec-  agers to look well-informed about their                  er stronger results for advisors, specifi-  ommendations for advisors to execute as   clients’ portfolios. AI represents the most                  cally by using supervised learning models   they look to better serve their clients.  powerful innovation in the industry’s his-                  to solve specific business needs. When   Think of it as having a client service   tory for helping advisors save time, bet-                  you start with the outcome in mind and   intern who is on top of your crm, client   ter educate themselves and, ultimately,                  use the latest models to tap into propri-  books and records 24/7, standing ready   create better wealth outcomes for their                  etary firm data, you’re able to mine this   to provide actionable intelligence at a   clients. —vinay nair, Ph.d., founder and                  data for correlations and extract valuable,   moment’s notice.      Ceo of tIFIn Wealth                                  for all this and more Web exclusive content please visit thinkadvisor.com                             INvESTMENT AdvISOr (ISSN 1069-1730) is published 7 times a year in February, April, June, July, September, November and December. 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Allow four weeks completion of changes                                                                                         December 2023 Investment AdvIsor 1","Features                                                                          December 2023                                                                                                       Vol. XlIII No. 7                                                               20                                                                    Cover Story                                                        Top news of 2023…                                                  And what the industry shifts mean                                                    for advisors in the year ahead.                                                      By Allison Bell, Jeff Berman,                                                    Janet Levaux, John Manganaro                                                        and Melanie Waddell                                                              2 Investment AdvIsor December 2023 | ThinkAdvisor.com","IA_Full Page Ads_December_2023.indd   3                                                               11/9/2023   2:24:27 PM","Departments                                                                       December 2023                                                                                                       Vol. XlIII No. 7                      1 | ThinkAdvisor.com              38 | Advertiser's Index          “It’s overregulation and                  6 | Editor's Note                                                  it hurts the advisors                                                                                      that are doing the right                                                                                     thing already.”                                                                                                          —Ed Slott                                                                                        Columns                                                                                        The Playing Field                                                                                       31 | The 2 Biggest Fights Brewing                                                                                      over doL’s new Fiduciary Rule                                                                                      By Melanie Waddell                                                                                      The rollover changes are controversial,                                                                                      but the “single-biggest fight” will                                                                                      come from insurance agents, a lawyer                                                                                      predicts.                  Beginnings                        Industry Insights                 The Fast Track                                                     14 | CAIs, nitrogen Events                  Retirement/                       Highlight Growth Plans            33 | Leadership Means Taking an                  Annuities Planning                                                  Honest Look at Real Problems                                                    Portfolio Perspectives            By Angie Herbers                  8 | one Way to Protect near-                  Retirees From Market shocks:      15 | How Adding Riskier Assets    The best managers put aside quick-                                                                                      fix tasks and do the hard work of                  Wade Pfau                         Can Lower Portfolio Risk          identifying deeper challenges.                     Conclusions                                 Broker-Dealer Beat                RIA Lessons \& Leaders             Compliance Coach                   35 | LPL Keeps Up strong          37 | Commonwealth to open, Hire   40 | sEC Highlights Exam Priorities                  Recruitment                       staff for new Home office         for 2024                                       Send comments to: jlevaux@alm.com; by post to: 150 east 42nd st., Mezzanine level, new York, nY 10017                           How to    Subscriptions: visit Thinkadvisor.com. Address changes and circulation customer service: send old and new addresses by fax to 847-763-9587;                        contact us   by email to investmentadvisor@omeda.com; or call 800-458-1734.                                     reprints: email reprints@alm.com, or call 877-257-3382.                 4 Investment AdvIsor December 2023 | ThinkAdvisor.com","B:8.25\"                                                                   T:8\"                                                                  S:7\"                                     FIND YOUR SILVER LINING                            BY UNCOVERING OPPORTUNITIES                          See how our active investment platform can help you keep your                      clients focused on their long-term goals. Find your silver lining                      at mfs.com/silverlining.                                                                                    S:9.5\"  T:10.5\"  B:10.75\"                                                                                                                                                          ©2023 MFS Investment Management   55065.1             IA_Full Page Ads_December_2023.indd   5                                                               11/9/2023   2:24:37 PM                    InvestmentAdvisor_MFS_VOL_SILVER_PLATFORM_MAG_8x10.5.indd                 Saved at   9-29-2023 12:06 AM  from  EKCSMAC142                                      Version    1             Job Info                    Notes                        Fonts \& Images                  Printed At  None            Job     MFS660823           MFS SILVER LININGS_PRINT     Fonts            Client  MFS                                              DIN OT (Regular, Condensed Bold, Bold), DINOT (CondRegular)            Brand   SILVER_PLATFORM            Campaign  SILVER LININGS                                 Images                                                                     shutterstock_481466848_Light_2.psd (CMYK; 270 ppi; 111.08%), MFS-IM_4c_color.eps            Live    7\" x 9.5\"                                        (97.22%)            Trim    8\" x 10.5\"            Bleed   8.25\" x 10.75\"                                   Inks                                                                        Cyan,    Magenta,    Yellow,    Black            Media Type  MAG4C            Pubs    Investment Advisor            Language  English                    None","EDItOr’S NOtE                                             By Janet Levaux                                    INvESTMENT AdvISOr GrOup                                                                                          150 East 42 Street, Mezzanine Level • New York, NY 10017                                                                                      201-526-1230/Fax 201-526-1260/Circulation Customer Service: 800-458-1734                                                                                                     EdITOrIAl                                                                                           EdITOr-IN-cHIEf, rEGulATEd MArkETS GrOup                                                                                               Nichole Morford nmorford@alm.com                  turning the Page                                                      ExEcuTIvE MANAGING EdITOr Katie Rass krass@alm.com                                                                                         GrOup EdITOr-IN-cHIEf Janet Levaux jlevaux@alm.com                  W         e’re pleased to share a look at some of the biggest stories of 2023 and to   SENIOr WrITEr John Manganaro jmanganaro@alm.com                                                                                          SENIOr EdITOr ANd WASHINGTON BurEAu cHIEf                                                                                               Melanie Waddell mwaddell@alm.com                                                                                           INSurANcE EdITOr Allison Bell abell@alm.com                            thank you for your continued support of our publication.                              The past 11 months have seen strong momentum in the markets and                  in the industry. The S\&P 500 was up about 15% so far this year at over 4,400 when   STAff rEpOrTEr Dinah Wisenberg Brin dwbrin@alm.com                                                                                          dIrEcTOr, dESIGN \& MulTIMEdIA JOurNAlISM                   we went to print. The traditional 60/40 portfolio, as tracked by PortfoliosLab, is up   Roberto Jiménez rjimenez@alm.com                  over 8.7% as of Nov. 11.                                                Sr. ArT dIrEcTOr Chris Nicholls cnicholls@alm.com                    Statistics  on  the  growth  of  the  independent  advisor  space  are  robust  — with   rESEArcH EdITOr Liana Roberts lrroberts@alm.com                  close to 15,115 individuals in the profession helping 62 million clients with $115 tril-                  lion in assets, according to the Investment Adviser Association’s latest data. Plus,                  these firms employ some 971,500 individuals.                                     BuSINESS                                                                                                SAlES MANAGEr, WEST                     This publication and its precursors have proudly covered the independent advisor   Neil Dant 859-692-2112 ndant@alm.com                  field for some 40 years, focusing on issues that most affect you and your businesses. Like   SAlES MANAGEr, MIdWEST/NY/NJ                   your work, ours is now being done in a predominantly digital format rather than on paper.  Lauren Rispoli 212-457-9527 lrispoli@alm.com                                                                                                SAlES MANAGEr, EAST                     Each day, we curate several electronic newsletters with updates on the latest regu-  Archer Montague 804-464-1232 amontague@alm.com                  latory, portfolio and industry developments, analysis of retirement and financial plan-  dIrEcTOr Of clASSIfIEd SAlES                   ning trends, as well as commentary pieces on how you can best grow your practices.   Martha Frechette 213-760-6159 martha@rwwcompany.com                    In 2024 and beyond, our highest priority is to give you helpful, informative con-  clIENT SErvIcES MANAGEr                   tent on key issues and innovations in the investment advisor space, so you can most   Debbie Maggard 859-692-2197 dmaggard@alm.com                                                                                              Sr. BrANd MArkETING MANAGEr                   effectively serve your clients. We will do so in a purely digital format going forward,   Linda oslon 212-457-9662 loslon@alm.com                  and Investment Advisor magazine — the roots of which were started around 1980   dIrEcTOr Of rEprINTS                   by the late investment banker Robert A. Stanger — will no longer be published.   Syndia torres-Pena 877-257-3382 reprints@alm.com                    In 2024, our editorial team will aim to give you more of the online coverage that                  helps and interests you most, such as:                    •  Breaking news and follow-up pieces on the top issues affecting investment advisors;  AlM SENIOr MANAGEMENT                    •  In-depth analysis from industry VIPs like Ed Slott, Angie Herbers and others;   cEO Bill Carter                    •  Insightful columns that dig into industry trends, as well as key compliance,   prESIdENT, INfOrMATION SErvIcES Jon DiGiambattista                      retirement, portfolio and practice management issues; plus         prESIdENT, EvENTS ANd HEAd Of GlOBAl STrATEGIc                    •  Yearly coverage of our LUMINARIES recognition program                    INITIATIvES Mark Fried                    Many of you already visit our website regularly and subscribe to our newsletters.   prESIdENT, MArkETING SErvIcES Matthew Weiner                  If not, please visit ThinkAdvisor.com and sign up soon to get our digital content   Sr. vp, HuMAN rESOurcES Erin Dzieken                  delivered to you via email.                                           Sr. vp ANd GlOBAl cOrpOrATE cONTrOllEr Daniel Herman                    We look forward to giving you the latest compliance news, planning strategies   Sr. vp, fINANcE Mark okean                  and more, as well as the columns, features and other content you’ve read in print   Sr. vp, OpErATIONS Josh Gazes                  over the years. Plus, we’ll introduce more online graphics and other digital formats   cHIEf TEcHNOlOGY OffIcEr Jimi Li                  featuring useful facts and figures.                                        cHIEf cONTENT OffIcEr Molly Miller                    Your longtime support of Investment Advisor is greatly appreciated. We’re grate-  cHIEf SAlES OffIcEr, pAId cONTENT Allan Milloy                  ful for it — and for the generous contributions of sponsors, contributing columnists,   vp, SAlES, fINANcIAl SErvIcES dIvISION Adam Dunn                  staff and others who brought the publication to life each month over the past few   vp, SAlES, INSurANcE ANd rEAl ESTATE dIvISIONS Peggy Schecter                                                                                          vp, rEGulATEd MArkETS EvENTS Scott thompson                  decades. Thank you again and Godspeed.                                                               GrOuP EDItOr-IN-cHIEF                 6 Investment AdvIsor December 2023 | ThinkAdvisor.com","Grow your business with FREE                    leading-edge Newsletters from                    ThinkAdvisor.com                            Gain your                 competitive edge                  when you receive                  complimentary                 vital news, analysis,                  market trends,                 practice                  management tips,                  compliance updates,                 and portfolio                  strategies.                               Sign up now at                 ThinkAdvisor.com/Newsletters                                IA_Full Page Ads_December_2023.indd   7                                                               11/9/2023   2:24:46 PM","Beginnings                               reTIremeNT/ANNuITIeS PlANNING                      By John Manganaro                    one Way to Protect near-retirees From                   Market shocks: Wade Pfau                    This approach may help near-retirees with significant bond allocations stay                  on course when a rapid rise in interest rates hits.                                                     ear-retirees who are depending   reduce the value of existing bonds, but   work, there is an emerging alternative                         on bond funds to maintain the   investors who fear equity market vola-  approach for advisors and investors to                  Nvalue of their assets without    tility  often  feel they have  little  choice   consider,  and  it  involves  using  struc-                  taking  excess  equity  market risk are   but to stick with their bond-heavy port-  tured investment products as a comple-                  still vulnerable to having their financial   folio allocations. This is because the   ment to the standard 60/40 portfolio.                  plans steered off course by rapidly rising   traditional approach of investing only in   Recent innovations in the structured                  interest rates. As noted in a new report   stocks and bonds creates a big limitation.  annuity market, in particular, offer                  published by the well-known retirement   “The only mechanism [such] an inves-  an alternative distribution of returns                  researcher Wade Pfau in collaboration   tor can use to adjust the distribution of   through guarantees that offer both the                  with Equitable, this concept shifted   potential returns is the allocation of their   opportunity for growth and protection                  from abstraction to reality in 2022. The   savings between the asset classes,” Pfau   against loss, Pfau says.                  year brought stock and bond market   notes. In this binary framework, moving   As Pfau explains, structured annui-                  losses in the double digits, and the pain   away from bonds means taking more risk   ties use financial derivatives to create a                  on the bond side was mainly driven by   in the equity market, which itself may be   structured return that changes the shape                  rising interest rates.            a bigger worry for some investors.  of the portfolio’s projected return dis-  Adobe Stock                    As Pfau explains, rapidly rising rates   Fortunately, according to Pfau’s latest   tribution and the relationship between                  8 Investment AdvIsor December 2023 | ThinkAdvisor.com","downside risk and upside potential.   “Well, we are asking, what if you   structured, buffered approach as an                  Though  the  mechanics  are  somewhat   change that approach in a more funda-  asset class in an asset allocation model,”                  complicated, when added to a diversified   mental  way,  for  example  by  bringing  a   Pfau emphasizes. “That’s the punchline                  portfolio, these solutions may provide   registered  index-linked  annuity  into  the   of the research, seeing what these types                  an opportunity for household investors   picture, one that features a buffer on the   of solutions can do to move the efficient                  to improve their financial outcomes by   downside  performance,”  Pfau explains.   frontier for the whole portfolio.”                  offering a beneficial trade-off between   He gives the example of a structured solu-  Put another way, when one adds                  upside and downside risk, he adds.  tion with a 10% downside buffer, which   these types of structured annuity seg-                    Ultimately, Pfau argues, the growing   can be achieved by purchasing a RILA.  ments that change the distribution of                  category of structured annuity prod-  “So, if you are holding this solution   returns, an investor can dramatically                  ucts provides an alternative for house-  and you see a market drop of 8% in that   improve  portfolio  performance  while                  holds to manage market risks as they   year, you’ll get a 0% return, and if you   also achieving higher risk-adjusted                  approach  retirement.  He  says  these   see the market fall 12%, you’ll only suf-  returns. “We found strong evidence that                  annuities  allow  an investor  to design   fer  a 2%  drop,” Pfau  said. “That’s the   you can build portfolios with a higher                  their own distribution of investment   original  idea of what a RILA is. It has   return expectation and less volatility                  outcomes  to  better  manage  downside   the indexing component, which means   relative to what you can achieve with                  risks, while still providing participation   there is a downside component to grap-  stocks and bonds alone,” Pfau says.                  in the market upside.             ple with, but this in turn means you can                                                    get more of the upside over time.”  Bond (or stoCk) rePlACeMent?                  GAInInG AttentIon                                                   According to Pfau, if explained clearly to                  “The ability to better manage downside   dUAl steP UP APProACH      clients, this approach to investing can be                  risks can lay a foundation for either   According  to  Pfau,  another  emerging   very appealing, especially to those pre-                  needing less savings to successfully   investing approach that was “really   retirees who feel they have saved suc-                  retire, or to enjoy a higher standard of   intriguing” and that contributed sig-  cessfully and want to protect what they                  living from a given asset base,” Pfau   nificantly to the positive performance   have set aside, but who are also worried                  posits. This research is focused on asset   seen in the analysis is called the “dual   about  their  longevity  risk.  Using  these                  accumulation during the run-up to   step up,” which is a feature of some   solutions provides meaningful down-                  retirement, and often when people hear   structured products already available in   side protection without sacrificing too                  the word “annuity,” he explains, they   the marketplace.            much upside.                  tend to think more or less exclusively   “The basic idea here is that you are   “In addition, there is another really                  about retirement income.          going to get credited with a fixed return   interesting  dynamic  in  our  findings,”                    “It’s exciting  because  this  research   whenever the index achieves a certain   Pfau  says.  “I  often  talk  about  annuities                  project with Equitable is actually broken   degree of performance,” Pfau explains.   as a bond replacement, and certainly you                  into two phases, and this first phase is   “So, for example, consider a 15% segment   see that, compared to bonds, these types                  not specifically talking about retirement   buffer. As long as the market was not   of structured financial products can per-                  income,” Pfau notes. “That will be the   down more than negative 15% — even if   form significantly better, especially when                  second part of the project. This initial   it was down 14% or up 50% — that inves-  you layer in the tax-deferral factor.”                  phase is about exploring the question of   tor will be credited with an 8.5% return   But, Pfau says, it was also interesting                  what having a structured return on a por-  for that year, and you’re only exposed to   to see that, if one looks to more conser-                  tion of your investments can allow you to   the loss beyond that negative 15%.”  vative investors, this approach can also                  do with the overall asset allocation and   In  Pfau’s  extensive  Monte  Carlo   be really appealing: “I don’t want to say                  your risk and performance goals.”  performance simulations, a theoretical   these annuities are good stock replace-                    According to Pfau, advisors and   near-retiree could expect to get that   ments for the typical investor, but they                  their clients are used to talking about   8.5% return in something like 92% of the   can play an interesting role if someone                  bell curve distributions of stocks   years projected, and the other 8% of the   was only going to have a really low stock                  and bonds, and about setting limits   time they see only a small loss. Naturally,   allocation anyway,” Pfau explained. “By                  on both the upside and the downside.   this is an attractive performance distri-  allocating to bonds in the structured                  Generally, advisors seek to limit the   bution for a near-retiree worried about   product, they can still dramatically                  downside while the client is approach-  market shocks.              improve the frontier of potential returns                  ing retirement, at the expense of poten-  “The big conclusion we can draw   compared with, in this case, a small                  tial upside performance.          here is that you can basically treat this   stock allocation.”                                                                                            December 2023 Investment AdvIsor 9","reTIremeNT/ANNuITIeS PlANNING                   By John Manganaro                      Jamie Hopkins: the ‘Fun’ new retirement                   Planning Metric                    “Success isn’t binary and neither is your retirement,” he says, summing up                   the buzz around a new paper.                              hile sustainable retirement-                            income planning has always                  W received both academic and                  industry-driven analysis, a veritable                  groundswell of innovative research is                  being published on the subject. One                  such example is a new paper published                  in the fall edition of the Journal of                  Financial Planning by Javier Estrada,                  a financial advisor and professor of                  finance  at  the  IESE  Business  School                  in  Barcelona,  Spain.  The  paper  seeks                  to  answer  a  seemingly  simple  ques-                  tion:  “In  retirement planning, is one                  number enough?”                    Specifically, Estrada is referring to                  the “incidence of failure” metric that                  dominates many advisors’ Monte Carlo-                  based income planning efforts. Although                  the paper includes some in-depth analy-                  sis of the math and assumptions that                  underpin this style of income planning,                  Estrada’s answer can be summed up                  with a simple “no.” He goes on to offer                  his own key metric that he calls the                  “risk-adjusted coverage ratio.”                    The recently published paper is gen-                  erating  some  buzz  among  U.S.  finan-                  cial advisors  and  retirement industry                  thought  leaders.  This  includes  Bryn                  Mawr Trust’s Jamie Hopkins. The risk-                  adjusted coverage ratio is a “really fun”                  metric to look into, he said recently in                  a video posted to the social media plat-                  form X, formerly Twitter.         spending  plan. One  powerful  means of   tion,  Hopkins  says,  and  is  pointing  out                                                    doing so is to introduce new metrics that   that advisors have had too much focus                  HoW Monte CArlo FAlls sHort       help clients to understand the “mag-  on one number when it comes to decid-                  As  Hopkins  explained,  Estrada’s  paper   nitude of failure” concept that is often   ing what retirement strategy makes                  shows how financial planners can do   overlooked  in  traditional  Monte  Carlo   sense — the failure rate of a portfolio                  better for their clients by helping them   simulations.             in a traditional Monte Carlo simulation.                  to optimize and  regularly update  their   Estrada is asking an important ques-  As  Hopkins  has  explained  in  prior                  10 Investment AdvIsor December 2023 | ThinkAdvisor.com","videos and in an interview, when report-  “Retirement is not binary. It is not                  ing  binary  Monte  Carlo  results  to  a                  client framed around probability of suc-  success or failure. People adjust their                  cess, anything less than 100% can sound                  scary. For example, for a client with a   spending, they adjust their lifestyles,                  75% probability of success  at a given                  starting  spending  amount,  failing  one   when [the] plan starts to go off course.”                  out of every four times simply does not                  sound acceptable to many people.                       —Jamie Hopkins                    It  is  crucial,  however,  to  think  care-                  fully  about  what  a  75%  success  result   when [the] plan starts to go off course.”   doesn’t speak to the timing of failure.                  in  a  Monte  Carlo  simulation  actually   So, as Estrada is asking, why would advi-  “Did your portfolio run out of money                  suggests. While this metric does project   sors only make decisions about what the   super  early  in  retirement,  like  in  year                  that one in four retirement scenarios   retirement strategy should be based on   15, which you would find unaccept-                  will “fail,” the metric alone actually tells   that outdated, binary notion?  able?”  Hopkins  asked.  “Or  did  it  run                  a client nothing about how severe that                              out of money in year 29 [of the 30-year                  failure is.                       BUIldInG A Better InCoMe          projection period]?”                    “Now  here’s  the  thing,”  Hopkins   APProACH                      These are two very different levels of                  said. “Retirement is not binary. It is not   In the paper, Estrada pushes on the   failure. The other question is the magni-                  success  or failure. People adjust  their   idea that the failure rate taken alone   tude of failure, which relates to the tim-                  spending, they adjust their lifestyles,   has two big flaws. The first is that it   ing but is also a distinct consideration.                                       Working to make                               retirement clear                                for everyone.                                    SEEK CL ARIT Y AT JACKSON.COM                               Jackson  is the marketing name for Jackson Financial Inc., Jackson National Life Insurance Company  (Home Office: Lansing, Michigan), and Jackson National Life Insurance                             ®                                                                            ®                                     ®                          Company of New York  (Home Office: Purchase, New York).                          CMC25777AD2 10/22                                                                                        December 2023 Investment AdvIsor 11","reTIremeNT/ANNuITIeS PlANNING                        How far short did the client run at that                  time? Would it be a devastating failure   The other key consideration is to ask                  or a minor inconvenience?                    The other key consideration is to ask   whether it is really a “successful” retirement                  whether it is really a “successful” retire-                  ment if clients are petrified of spending   if clients are petrified of spending and end                  and end up following a very conservative                  plan with a 100% success projection.   up following a very conservative plan with a                  This could mean they end up leaving a                  large bequest — either to a spouse, chil-       100% success projection.                  dren or the government via estate taxes.                  “Is that a good thing? Is that even what                  you’re looking for?” Hopkins asked.   years of inflation-adjusted annual with-  As a simple baseline, if clients expect                                                    drawals that  could likely be sustained   to make it 30 years in retirement, and                  WHAt Is tHe rIsk AdJUsted         in a given situation, and then they are   their withdrawal plan is projected to                  CoverAGe rAtIo                    dividing that number by the anticipated   cover all 30 years without leaving any                  In  the  paper,  Estrada  defines  this  con-  length of retirement for the individual   leftovers, that would provide a “1” value                  cept using a few terms. Essentially, the   client, given their health status and lon-  for their coverage ratio. On the other                  advisor is taking the projected number of   gevity expectations, Hopkins explained.  hand, if they assume that their retire-                       This Tool to Keep Clients From                    Going Broke in Old Age Looks More                    Attractive Than Ever, Advisor Says                    Joe Opiela, wealth advisor and vice president of strategic                    partnerships at Schechter Wealth in birmingham, mich.,                    is alerting financial professionals to the fact that some of                    the ancillary effects of higher interest rates haven’t been                    fully considered: this includes the issuance of annuities,                    especially qualified longevity annuity contracts, at attrac-                    tive payout rates that haven’t been seen in the better part                    of two decades.                      “One really exciting area is QLAcs,” Opiela recently                    said in an interview. “this is a topic that should be                    known by all advisors, especially in the mass affluent                    space.” As he explains, QLAcs themselves aren’t a                    new product.                      back in 2014, the u.S. treasury enabled the purchase                    of deferred income longevity annuity contracts inside of 401(k)   “the second factor is the changes made by the Secure Act                    and traditional individual retirement accounts, thereby letting   2.0 legislation, which as your readers may know, specifically                    consumers use what is usually their largest retirement savings   addressed the QLAc maximums.” Previously, only the lesser                    vehicles to make an annuity purchase. What is new, Opiela   of 25% of the aggregate account balance or $145,000 of the                    says, is this interest rate environment, and the current situation   client’s qualified retirement funds could be deployed toward                    in the markets makes QLAcs and other annuities look more   a QLAc, but that amount has been raised to $200,000. As                    attractive than they have in decades.             before, investors can purchase QLAcs that kick in with income                      According to Opiela, reconsideration of QLAcs is timely for   starting as late as age 85.                    three main reasons. “One, as interest rates have risen dramati-  As Opiela notes, the third factor to consider is the big chal-                    cally, annuity payout rates are better than they have been in at   lenge of addressing increasing longevity — which is a particu-  Adobe Stock                    least 15 years, if not longer,” he says.          lar concern for those who are in the mass affluent and high-                   12 Investment AdvIsor December 2023 | ThinkAdvisor.com","ment goes 36 years and that their portfo-  signal that they could expect to spend   similar way. “When selecting an optimal                  lio in the simulation would cover just 30   more  annually  early  in  retirement  —   retirement strategy, a retiree may aim                  years, that would give them a ratio of 1.2.  especially if they don’t have big legacy   to maximize the coverage ratio, a novel                    Obviously, the more this ratio increas-  giving goals.            metric  superior  to  the  failure  rate,”  he                  es, the more cautious a client would                                wrote. “This article suggests focusing on                  want to be about that plan and the   BottoM lIne                    the whole distribution of coverage ratios                  more they may need to consider mak-  Estrada argues that advisors and clients   instead, or at least on some percentiles that                  ing lifestyle adjustments along the way   can use this framework to help make   may be of particular interest to a retiree.”                  to protect themselves from running   ongoing  adjustments  according  to  the   Although such an approach may                  out,  Hopkins  said.  The  idea  is  that,  as   perceived likelihood of these different   not be as neat as making decisions                  one navigates retirement, they will see   events occurring. “Now remember, you   based on optimizing a single vari-                  their coverage ratio move up and down   should pick a strategy not based just off   able, it does enable consideration of                  according to their actual spending, mar-  of this research but one that resonates   the relevant trade-offs a retiree needs                  ket conditions and other factors.  with you and that you can understand,”   to evaluate in order to find an ideal                    Alternatively, if clients assume a   Hopkins  said.  “You  should  also  not   retirement strategy.                  24-year retirement period and their   get  too  overly  focused  on  one  number.                  portfolio could easily sustain 30 years   Remember, success isn’t binary and nei-  John Manganaro is a senior retirement                  of withdrawals, that gives them a start-  ther is your retirement.”  reporter and can be reached at                  ing coverage ratio of 0.8, which may   Estrada summarizes his findings in a   jmanganaro@alm.com.                     net-worth client segments, given their excess relative longevity   vative, longer-term bond funds with no reinvestment or inter-                  compared with the u.S. population as a whole.     est rate risk. this example is approximately a 6% internal rate                    “Advisors will know that the worry about outliving one’s   of return starting at age 88, and it climbs thereafter — con-                  money comes up often,” he says. “but you might be surprised   tractually guaranteed by the insurance company.”                  to know that it comes up frequently even among the higher-  beyond the potential for an early death, Opiela says, the                  net-worth clients we serve. It’s just a natural fear — that lon-  other primary drawback of a QLAc is losing liquidity. In this                  gevity risk and the basic fear of outliving one’s money.”  sense, it is a great solution for the mass affluent, he says,                    As Opiela explains, the idea of hedging longevity risk is an   because this group will likely have enough liquid assets to                  important component of the planning discussion when it comes   address the early phase of retirement but may face a tougher                  to QLAcs, but that’s not the whole story. Especially with rates   picture if they end up living beyond 90 or even 100.                  where they are today, the QLAc can also be an attractive   “If someone is worried about passing away before they get                  approach from an internal rate of return perspective.  income from the annuity, there are products out there with a                    Opiela shares the theoretical example of a healthy man who   cash refund option,” Opiela explains. “Depending on the cli-                  is 63 and thinking about funding a QLAc. “Let’s imagine that   ent’s concerns, you can incorporate this concept. but keep in                  he transfers $200,000 in qualified money into a QLAc that   mind, there is a cost.”                  begins to pay out at his age 80,” Opiela suggests.   citing the prior example of the healthy 63-year-old man                    “With rates where they are today, at age 80, he could   buying a QLAc that starts paying income at 80, the use of                  expect to receive around $74,000 annually in guaranteed   a cash refund option would decrease his $74,000 a year in                  lifetime income. If he lives to age 88 in this scenario, the   guaranteed income by a little more than $10,000. “there is a                  income translates to a 6% internal rate of return on the dollars   tradeoff,” he says. “Still, I like to see that the products are get-                  deployed to the QLAc, and that number only goes up over   ting more flexible in this regard, and I see this as an important                  time,” he explains.                               option for advisors to know.                    Opiela stresses the importance of health considerations in   “the important planning point here is that today, the                  this planning discussion. Simply put, this may not be a great   future income solves may be higher in QLAcs, but we should                  strategy for a client with health issues and/or doubts about liv-  acknowledge that fixed indexed annuities have other poten-                  ing long enough to reclaim their initial investment.  tially attractive elements to them as well,” Opiela concludes.                    “but, as you can see, if someone is healthy now and they   “those will give you some additional liquidity and flexibility,                  are worried about outliving their funds, this is a great, simple   but likely are not going to beat the guaranteed income from                  option,” he says. “One may obtain a higher return than conser-  the QLAc.” — John Manganaro                                                                                            December 2023 Investment AdvIsor 13","INDuSTry INSIGHTS                   By Timothy D. Welsh                      CAIs, nitrogen events Highlight Growth Plans                    Key themes included a new alternatives platform, AI and client testimonials.                            he action today in wealth man-                                summit, with a number of panels, dis-                        agement is in the alternative                                 cussions and breakouts on helping advi-                  Tinvesting  space.  Case  in  point:                                sors rediscover their marketing muscles                  The  CAIS  Alternative  Investment                                  and find new ways to leverage the digital                  Summit  recently  held  at  the  Beverly                            marketing tools and techniques inte-                  Hilton in Beverly Hills, California.                                grated into the Nitrogen platform.                    Tripling in size from the 2022 edition,                             Mary  Kate  Gulick,  executive  vice                  the 2023 summit featured over 1,000                                 president  of  marketing  at  FiComm                  independent advisors and asset manag-                               Partners, explained how advisors can                  ers. They gathered in mid-October to                                take advantage of the SEC’s new market-                  learn about the latest investing strate-                            ing rule to allow for client testimonials.                  gies and techniques to find new ways to                               “The irony here is that at this point,                  deliver performance to client portfolios.  strategy could significantly increase the   everyone has to adhere to the rule anyway,                    That’s particularly relevant now that   universe of alternatives available to advi-  yet only 11% are actually using testimoni-                  equity and bond markets are becoming   sors via CAIS, the firm says.  als,” she said. “Advisory firms are doing                  increasingly correlated during inflation-  The  CAIS  Summit  also  featured  key-  all of the work to comply, so it is a huge                  ary periods, making the need for diversi-  notes from financier Michael Milken, for-  missed opportunity to not be using them.”                  fied portfolios more important than ever.  mer Florida Gov. Jeb Bush, former AOL   Gulick provided some simple yet high-                    “We believe the future portfolios   CEO Steve Case and actor Rob Lowe.   ly actionable ideas to gather testimonials                  will move away from the traditional   Earlier in October, Nitrogen (the for-  without it seeming like it was asking for                  60% stocks and 40% bonds to a more   mer Riskalyze) hosted a large industry   a favor from clients. “Rather, make it part                  modern approach of 50% stocks, 30%   event in Miami — the Fearless Investing   of the client experience,” she explained.                  bonds and 20% alts,” Matt Brown, CAIS   Summit.  Fresh  off  a  rebrand  to  better   “Your  clients  selected  you  for  a  reason,                  founder  and  CEO,  said  in  his  opening   reflect the identity, capabilities and tech-  so during signing ceremonies or annu-                  remarks.  CAIS  has  been  a  leader  in   nology to become a “growth platform,”   al reviews, simply ask them why they                  alternatives — recently raising $100 mil-  Nitrogen also brought a large crowd   picked you. Often what they say instantly                  lion  from  Reverence  Capital  Partners,   together to learn the latest technology   becomes a very powerful testimonial you                  valuing the firm at over $1 billion.  trends, developments and new enhance-  can  use, without the experience  feeling                    Brown  detailed  that  his  predicted   ments to the popular Nitrogen platform.  like it was a courtesy you are asking for.”                  increase in advisor demand for alter-  Kicking off the event was Nitrogen   The Fearless Investing Summit also                  natives is being driven by better risk-  CEO Aaron Klein, who shared an update   featured Joe Lonsdale, founder of tech                  adjusted returns and the ability to gather   on the new investments that Nitrogen   giants  Palantir  and  Addepar.  Backed                  more assets from existing clients, as well   was making along with his view that arti-  by a recent $145 million capital raise,                  as attracting high-net-worth investors   ficial intelligence in wealth management   Lonsdale’s next tech venture is Opto,                  looking for more than just a vanilla port-  was at an “exciting inflection point.”  which takes a new approach to inte-                  folio to meet more complex needs.   “Generative AI is starting to power a   grating alternative investments — a                    As part of a renewed focus to level the   massive revolution,” he said, “that will   theme  linking  the  CAIS  and  Nitrogen                  playing field against the wirehouse firms,   allow advisors to work a fifth of the   October events.                  CAIS  announced  the  launch  of  CAIS   time, go five times deeper with their                  Solutions, a new software-as-a-service   clients, become five times as profitable,   Timothy D. Welsh, CFP, is president, CEO and                  technology platform that aims to central-  or dramatically lower their minimums   founder of Nexus Strategy, LLC, a consulting                  ize and streamline alternative investment   to exponentially multiply the number   firm to the wealth management industry and                  funds, no matter where advisors or home-  of people who can access their advice.”  can be reached at tim@nexus-strategy.com or   Adobe Stock                  office representatives source them. This   Growth  was  a  key  theme  across  the   on Twitter @NexusStrategy.                  14 Investment AdvIsor December 2023 | ThinkAdvisor.com","POrTFOlIO PerSPecTIveS                   By Jane Wollman Rusoff                      How Adding riskier Assets Can lower                   Portfolio risk                    Advisor David Scranton’s approach for clients includes higher-dividend                   equity strategies and bond-like investments.                          o David Scranton, CEO of Sound                        Income Group, “the real magic”                  Tis “the ability to get competitive                  returns with less risk.” Scranton, in an                  interview, argues  that “adding  a little                  bit of the riskier assets to a conservative                  portfolio can help increase your returns                  but lower your volatility and risk.”                    That’s been Scranton’s unusual                  income-generating strategy for about 25                  years. When he switched from a growth                  approach, the advisor saw his business                  “explode,” increasing “10-fold in about                  six years,” he says.                    Scranton, a 2023 ThinkAdvisor                  LUMINARIES    award   finalist   in   “more afraid of financial death — running   My theory, going back 25 years, being a                  Executive Leadership, focuses on boost-  out of money — than physical death.”  specialist in bonds, was that if I added                  ing income with higher-dividend equity   Here are highlights of our interview:   bond-like equities to a bond portfolio,                  strategies and bond-like investments.                               it would have the same result as adding                  That way, he’s able to offer “institu-  Investment Advisor: What’s your   regular equities and increase my return                  tional-style money management” to his   investment strategy?        [via] risk. And that’s exactly what we’ve                  target clients, “mom and pop” investors,   david  scranton: Income permeates   proven to work successfully for clients.                  as he puts it, who have, perhaps, about   everything we do. It’s our overall theme.   When I talk about bond-like equities or                  $100,000 of investable assets.    If you’re in the stock market, it’s higher-  bond-like stocks, I mean business devel-                    Scranton, who hosts a radio show   dividend equity strategies. We also do   opment  companies  and  REITs.  They’re                  syndicated in 40-plus states and has   a  lot of  bonds  and  preferreds,  and  real   bond-like stocks because of what’s in                  been in the industry since 1987, has four   estate investment trusts.  them.  By  adding  a  little  bit  of  that  to  a                  businesses, with assets under manage-  If you go from stocks to bonds, it   portfolio of bonds and preferreds, we can                  ment totaling $2.5 billion. Sound Income   lowers your risk. If you go from growth   actually increase the return — the income                  Group  includes his own longtime prac-  stocks to high-dividend stocks, it lowers   payment — and decrease the risk.                  tice, Scranton Financial Group, in Old   your risk. So income helps lower your                  Saybrook,  Connecticut,  and  three  com-  volatility, but it doesn’t necessarily mean   IA: What’s the main benefit for advisors?                  panies  that  support  other  independent   a reduced return. That’s the real magic:   ds:  Baby  boomers  need  more  income,                  financial advisors with marketing, coach-  the ability to get competitive returns   but the majority of financial advisors                  ing, practice management, investment   with less risk.              are growth-based and don’t focus on                  services and franchise opportunities.                               income. Most of them are focusing on                    In  the  recent  phone interview  from   IA: How does that happen?  total return irrespective of whether                  Fort Lauderdale, Florida, where his   ds: There’s a point where adding a little   it  comes  from  growth  or  income.  But                  group is based, Stanton says is dedicated   bit of the riskier assets to a conservative   baby boomers are getting older and                  to helping “average” folks and is especial-  portfolio can actually help increase your   older, and recent studies have shown                  ly eager to advise baby boomers, who are   return but lower your volatility and risk.   that they’re more afraid of financial                                                                                           December 2023 Investment AdvIsor 15","POrTFOlIO PerSPecTIveS                          death — running out of money — than   work with us indirectly through one   with  bonds  and  bond-like  instruments.                  physical death.                   of our advisors.                  I wasn’t [focusing on] high-dividend                                                                                      stocks till about 10 years ago.                  IA: Why aren’t more advisors using   IA: Baby boomers, who have saved little                  your strategy?                    for retirement, really are in need of   IA: What was the result of your switch?                  ds: These stocks are harder to pick than   retirement income. Aren’t they?  ds:  My   business   exploded.   In                  growth stocks. As a result, most advisors   ds: And Generation X isn’t in any better   Connecticut, people were coming from                  don’t go near high-dividend common   position; they might be in a worse posi-  all  over  to  find  out  what  I  was  doing.                  stocks or bond-like instruments because   tion. So this need is going to last. Our   They were saying, “If you want growth,                  they’re harder to research.       whole approach is: If you’re living off   go  to  Morgan  Stanley,  Merrill  Lynch                                                    interest and dividends and not touching   and  all  those  other  places.  But  if  you                  IA: Is your strategy only for high-net-  your principal, then you won’t run out of   want income, Scranton is the only guy                  worth people?                     money. That’s the only way to feel confi-  doing it.”                  ds:  No, the  biggest thing  about it  is   dent that you’re going to have [enough].  My business literally went up 10-fold                  that we take institutional-style money                              in about six years, and it was because I                  management and bring it down to mom   IA: You didn’t always use this strategy,   had a unique model. It’s still a unique                  and pop. If you have $100,000 to invest,   though. tell me why you switched to it.  model for any of our advisors who are                  we’ll invest it as if you were a $5 million   ds: In the late ‘80s and ‘90s I was pretty   willing to embrace it.                  or $10 million net-worth client. I want   much  of  a  growth  investor.  But  in  1999,                  to help the average person that really   when I started to get concerned about the   IA: Apart from the difficulty in picking                  needs it. That’s our mission.     market  —  price/earnings ratios were 40   the types of securities you use, why                                                    across the entire market, even over 100   wouldn’t they embrace it?                  IA: Please elaborate on the “institutional-  in some tech stocks, I knew this wasn’t   ds:  To become a specialist in some-                  stye money management” aspect.    going to last forever —  that the bubble   thing, you have to have the courage to                  ds: We’ve taken active management of   would burst and that when it did, [the   turn  away  investors  that  aren’t  a  good                  individual securities — high-dividend   market] would take a while to get better.  fit for your specialty, and most advisors                  stocks and individual bonds and bond-  So I thought, “I’ve got to do some-  don’t have the courage to do that. They                  like instruments — down for mom and   thing different.” And I had the cour-  lose their conviction in being a special-                  pop [to invest in]. The average inves-  age to make a transition. I switched   ist. That’s why most advisors today are                  tor  with  a  little  over  $100,000  will   my model to being more income based   stuck being generalists.                    I Bonds rise to 5.27%. should                                       “sounds great” and may seem a panacea                                                                                        While the new composite rate                   Clients Invest now?                                                 to inflation problems, “a prudent inves-                                                                                      tor needs to dig a little deeper and see if                                                                                      anything is appropriate to be included                      nvestors may be eager to buy infla-  bine an inflation-adjusted interest rate   in their portfolio,” Jamie Battmer, chief                      tion-linked  Series  I  Savings  Bonds   that  the  Treasury  Department  updates   investment officer at Creative Planning,                  Inow that the new composite rate   every six months and a fixed rate good   said in an interview.                  has risen to 5.27% for bonds issued for   through the bond’s 30-year maturity date.  The  bonds  do adjust  with  inflation                  the next six months. The more appealing   The new fixed rate for I bonds issued   and sometimes offer “extraordinary, eye-                  rate — up from the 4.30% composite rate   from Nov. 1 to April 30, 2024, was set at   popping numbers,” he said. (In 2022,                  for  I  bonds  issued  from  May  through   1.30%, an increase from the 0.90% for   amid soaring inflation, buyers flocked to                  October 2023 — doesn’t necessarily   those issued in the previous six months.   purchase I bonds at a 9.62% rate.) “It is a                  make  these  U.S.  government  securities   These securities, though, also come with   very easy story to tell at the 10,000-feet                  the best choice for clients, however.  drawbacks, market experts note, includ-  level.” But “you have to weigh a whole                    To be sure, low-risk I bonds offer   ing purchase limits, a one-year minimum   host of additional considerations.”                  attractive features. Designed to protect   holding time and loss of the last three   Based  on  a  client’s  risk  profile  and                  investors from rising prices, they com-  months’ interest if selling before five years.  portfolio needs, there may be a place for                  16 Investment AdvIsor December 2023 | ThinkAdvisor.com","I  bonds,  Battmer  suggested,  although   stock side, not the riskier end of the   is also a good time to take advantage of                  Creative  Planning  typically  prefers  to   bond market, the CIO said.   high short-term rates, Varghese said.                  be owners, through equities, rather than   I bonds’ floating-rate component,   Luskin Financial Planning owner                  creditors — even with stock risk pre-  unlike  the  fixed  rate,  isn’t  locked  in   John Luskin suggested I bonds may not                  miums compressing. “If this will some-  beyond six months from the purchase   warrant  the effort involved in  buying                  how allow an investor to sleep better at   date. “If inflation falls — especially gas and   them.  “I  bonds  are  perfectly  fine.  Yet,                  night” and reduce the risk that they’ll   food prices — the interest received goes   I’m  not  sure  if  the  juice  is  worth  the                  hit the panic button when markets are   down,”  Carson  Group’s  Sonu  Varghese,   squeeze. There’s only so much you can                  volatile, “then we would                                                       buy.  And,  adding  bonds                  absolutely be comfortable  “I bonds are perfectly fine. Yet, I’m not sure      to  your  portfolio  is  not                  with it,” he said.        if the juice is worth the squeeze. There’s           going to radically impact                    In any year, an individ-                                                     your  investment return,”                  ual can buy a maximum      only so much you can buy. And, adding               he explained.                  $10,000 in electronic I    bonds to your portfolio is not going to               “Moreover,  you’ve  got                  bonds and, by using their   radically impact your investment return.”          the complexity of hav-                  tax  refund, up to  $5,000                                                     ing to manage another                  in paper bonds. For cli-                  —John Luskin                         account — and the funky                  ents with big portfolios,                                                      Treasury Direct web-                  the purchasing restrictions may limit I   global market strategist, explained.  site,” Luskin said. “Finally, most folks I                  bonds’ ability to make a big difference,   Carson Group recommends Treasury   work with have much more urgent and                  Battmer said. Those with smaller portfo-  bills, with even 6-month T-bills now   important projects than buying I bonds,                  lios could take on some financial stress if   offering a higher yield around 5.5%, he   such as doing their estate planning or                  I bonds accounted for 10% or more, given   said. “They’re also more liquid, since I   buying  umbrella  insurance.  Since  time                  rules that can limit liquidity, he added.  bonds lose the last three months of inter-  and  energy  are  limited,  I’d  rather  they                    I bonds aren’t as liquid as other conser-  est if you sell within five years.” With the   do those more pressing projects first.”                  vative instruments, which can create risk   Fed likely to hold off on rate cuts, this   —dinah Wisenberg Brin                  for people across the socioeconomic land-                  scape, according to Battmer, who suggest-                  ed there are more effective instruments to   At dFA, etFs signal end of exclusivity                  generate higher, long-term returns.                    The 60% stock, 40% bond portfolio   Dimensional Fund Advisors, which   another post congratulating DFA on its                  “is more alive than ever,” he said, not-  offers its mutual funds exclusively   new global stock ETF.                  ing that great, high-quality, investment-  through approved financial advi-  By  launching  its  World  Equity  ETF                  grade bonds are available in the market   sors, has opened access to largely the   and  Ultrashort  Bond  ETF  last  month,                  more broadly, as well as high-rate cer-  same investments through its recently   Dimensional, which introduced its first                  tificates of deposit.             expanded exchange-traded fund lineup,   ETFs in 2020, now offers investors                    Bonds,  both  corporate  and  govern-  experts noted recently.    access through an ETF “wrapper” to                  ment, are yielding returns that can be   “DFA ‘gatekeeping’ is over. Advisors   virtually the same assets packaged in its                  built into an effective withdrawal strat-  who sell on access to DFA will need a   mutual funds, Miller said.                  egy, rather than simply acting as shock   new spiel. 99% of DFA’s useful lineup   Dimensional  announced  in  the  fall                  absorbers, as they have in the past,   will  be  unrestricted  in  the  ETF  wrap-  that it was adding seven new ETFs,                  Battmer  said.  These  instruments  are   per,” Rubin Miller, advisor and founder   including  the  newly  listed  Ultrashort                  huge positives for investors in the long   at Peltoma Capital Partners, posted on   Fixed Income ETF (NYSE Arca: DUSB)                  run, and more attractive today than they   X in September as Dimensional pre-  and  World  Equity  ETF  (NYSE  Arca:                  were 18 to 24 months ago, he added.  pared to launch two new ETFs.  DFAW). The company expects to end                    It’s much easier to get access to money   “I can’t wait. I love the funds and I   this year with 38 ETFs and to roll out                  in a low-cost aggregate bond ETF, which   love democratized access for all inves-  others in the future. The two recently                  isn’t as dramatically attached to infla-  tors,”  Miller,  a  former  DFA  regional   added funds had been  “glaringly miss-                  tion, Battmer said. In general, Creative   director and current client, added.   ing” from Dimensional’s ETF offerings,                  Planning prefers to take its risks on the   “No more barriers to entry,” he said in   Miller said in a recent interview.                                                                                           December 2023 Investment AdvIsor 17","POrTFOlIO PerSPecTIveS                            “The evolving value proposition  of   real reason for Dimensional’s success   many more mutual funds than ETFs,                  advisors is fantastic for investors, and   has always been substance, not style.   as  the  firm  started  offering  mutual                  selling ‘access to DFA’ is done. You still   They’ve delivered on their core prom-  funds four decades ago. Nonetheless,                  want an advisor/financial planner with   ise of smarter, low-cost pseudo-passive   he added, “advisors can fill out an                  immense investment expertise, you just   investing, which remains a pretty unique   asset allocation with a lot of confi-                  want that expertise to be manifested via   niche,” one also occupied by Avantis,   dence for investors” with the firm’s                  a simple, elegant portfolio of well-engi-  which was founded by Dimensional’s   ETF offerings.                  neered, low cost funds,” Miller posted.  former  co-CEO  and  chief  investment   Dimensional launched its ETFs in                    The new World Equity ETF gives   officer, Nadig said.             response to advisor requests, he said                  investors exposure to the entire global   Miller noted that when Dimensional   in an interview. “They wanted one                  stock market and could constitute a cli-  launched mutual funds decades ago, the   more tool  in addition to Dimensional                  ent’s entire stock portfolio, he noted in   firm decided to sell them only through   mutual funds.”                  the interview. Many advisors, wirehous-  approved  advisors  who  attended  their   On the legacy mutual fund side, “our                  es and brokerages place 100 or more   conferences. This exclusivity was a big   approach has always been about arm-                  funds in client portfolios, which doesn’t   part of the firm’s success, he said.  ing  great  advisors  with  the  tools  and                  add value, is confusing and “makes peo-  DFA wanted long-term, sticky rela-  resources they need to make great deci-                  ple feel dumb,” he said.          tionships to guard against investors   sions for investors,” and the firm’s con-                                                    being negatively affected by money mov-  ferences and other resources that are                  secret sauce                      ing too quickly in and out of its mutual   important to its advisor relationships                  Dave Nadig, ETF expert and financial   funds, Miller explained. ETFs generally   remain intact “regardless of the wrap-                  futurist  at  Vetta  Fi,  says  investors  no   offer lower costs, tax advantages and   per,” Skaff added.                  longer  have  to  use  advisors  to  access   more  flexible  trading  than  traditional   The  uptake  in  Dimensional  ETFs                  Dimensional investments because they   mutual funds, as they trade like stocks.  has been “fantastic,” and those funds                  can buy effectively the same assets avail-  For advisors, trading ETFs means they   now have about $100 billion in assets                  able in mutual funds through ETFs.  have to participate in the market, where-  under management, he said. The                    “For a long time, Dimensional’s hook   as mutual fund trades come only at the   firm guides investors to work with                  to advisors was exclusivity, and advisors   market  day’s  end,  Miller  noted.  “That   approved advisors  and  doesn’t pro-                  diligently  went  to  Texas  to  get  trained   has changed the landscape of what kind   mote its ETF offerings to the public,                  on  the  Dimensional  way.  As  the  ETF   of advisor people want,” as they need   Skaff added.                  lineup continues to expand, it becomes   one who knows how to engage with the   “Our objective was always to be in                  harder and harder to argue there’s any   market and execute trades, he said.  service of financial advisors to do good                  exclusivity left,” although there’s some,                           work for investors,” he said. Dimensional                  as not every Dimensional strategy is in   Popular demand            has a list of other potential ETF cat-                  an ETF, Nadig explained.          Bryce Skaff, co-head of Dimensional’s   egories to offer in the future, Skaff said.                    “But it’s worth pointing out that the   global client group, noted that DFA has   —dinah Wisenberg Brin                    to see Crashes Coming, look                   Backward: Housel               “         he lack of bear markets is actu-  determine  what’s  ahead,  delve  deeply                                                     into the past.                        ally what plants the seeds for                                                      Based  on  that,  he  says:  “If  you  were                  Tthe next bear market,” Morgan                  Housel,  financial  writer  and  partner   a really honest money manager, you                  in  The  Collaborative  Fund,  said  in  a   would tell your clients to make sure                  recent interview. In his new book,   to expect to lose a third or more of                  “Same as Ever: A Guide to What Never   their money several times in a decade.                  Changes,”  Housel  maintains  that  to   … A market fall of 20% has historically                  18 Investment AdvIsor December 2023 | ThinkAdvisor.com","occurred roughly every three years.”  investing  for  the  next  20  years,  you   IA: “the one thing you cannot measure                    Housel, the bestselling author of “The   should expect that to occur many,   or predict is the most powerful force in                  Psychology of Money” (2020), discusses   many times.                all of business and investing,” you say.                  these phenomena too: When investors   Then, when it actually happens, it’s a   Why is that true?                  think the markets are “guaranteed not   little bit more palatable, and you don’t   MH: These can be things that complete-                  to crash, that’s when they are more   see it as “Oh, the market is broken; the   ly and utterly change the course of his-                  likely  to  crash”;  stories  that  investors   economy is broken.” You see it as “This   tory, such as two of the biggest financial                  tell themselves about the future and   is normal for the market.”   and economic  events  of the  last 20  or                  how  those  affect  stock  valuations;  “the   You  write  that  when  people  think   25  years:  9/11  and  the  Lehman  Bros.                  one thing you can’t measure or predict   “the markets  are  guaranteed  not  to   [collapse] in 2008.                  [that’s] the most powerful in all of busi-  crash, that’s when they are more likely   The  common  denominator  of  those                  ness and investing” — and more.   to crash.” Please explain why.    events is that nobody saw them coming                    A  former  columnist  for The  Wall                               until they happened. They weren’t on                  Street Journal and Motley Fool, Housel   IA: High valuations actually trigger the   any analysts’ forecasts or in economists’                  joined  The  Collaborative  Fund  in   eventual crash. so people plant seeds of   outlooks. That of course should limit                  2016. It invests in startups, such as   their own destruction.      your confidence in specific economic                  Kickstarter, Lyft, Sweetgreen and The   MH:  You  write,  “The  higher  stock   and market forecasts that we have in                  Farmer’s Dog.                     valuations become, the more sensi-  the industry.                    In the recent phone interview with   tive markets are to being caught off-                  Housel, who was speaking from his base   guard by life’s ability to surprise you in   IA: You quote Charlie Munger, 99,                  in Seattle, the conversation touches on   ways you never imagined.” Why does   Warren Buffett’s partner in Berkshire                  “the first rule of a happy life” accord-  that happen?              Hathaway, as saying: “the first rule of a                  ing to Warren Buffett’s partner Charlie   The higher the valuation, when you   happy life is low expectations.” Can that                  Munger  and  what  Housel  invests  in   experience something like 9/11 or the   apply to investing?                  almost  exclusively.  Here  are  excerpts   Lehman Bros. [bankruptcy and collapse]   MH:  Absolutely.  Historically,  after                  from our interview:               or COVID-19, the more sensitive to that   inflation the stock market returns                                                    event the market is going to be.  about 6.5% per year. In my own retire-                  Investment Advisor: You write, “At                                  ment plan, it’s going to be a little lower                  the first sign of trouble, the reason   IA: In the stock market, “the valuation   than that. If it’s higher, great! That’s                  customers flee is often because   of every company is simply the number   a bonus.                  investors [financial advisors] have done   from today multiplied by a story about   But with too many people, the cause                  a poor job communicating how investing   tomorrow,” you state. What do you   of their economic anxiety and invest-                  works, what they should expect …   mean by “story”?                 ing problems is that their expecta-                  and how to deal with volatility and   MH:  The  stories  are,  effectively,  how   tions are way too high. If the market                  cyclicality.” Please elaborate.   people think the future is going to play   is returning 6% historically and they                  Morgan Housel:  If you were a really   out, and the variance in the stories can   expect to earn 10% or 15%, the gap                  honest money manager, you would tell   be enormous. When they’re pessimistic   between their expectations and the                  your clients to make sure to expect to   about the market, their stories are pessi-  circumstances  —  whether  it’s  invest-                  lose a  third  or  more  of their  money   mistic. If they’re optimistic, you get very   ing or relationships, or anything — is                  several times in a decade. That’s the   high prices. You need to recognize that   too [wide].                  normal  course  of  the  market.  But   for individual stocks or for the market                  there’s a disconnect of what clients are   as a whole.              IA: You mentioned your retirement                  told to expect and the historical norm   If  you  take  current  earnings  and   plan. Are you still investing exclusively                  of the market’s volatility.       multiple them by a story about tomor-  in index funds, as you were when we                    The most important information   row, you get a better sense of how the   talked in september 2020?                  that any  financial  advisor  can  give   markets work. When you realize how   MH:  Almost exclusively. I’ll  own them                  their clients is that there are histori-  the story-telling element [affects] valu-  for the next 50 years, if I can pull that                  cal precedents of volatility. A market   ations, some of the crazy events that we   off. It’s making a bet on global capitalism                  fall of 20% has  historically occurred   have, and booms and busts, can start to   rather than any company or industry.                  roughly every three years. So if you’re   make a lot more sense.    —Jane Wollman rusoff                                                                                           December 2023 Investment AdvIsor 19","And what the industry shifts mean                                                                    for advisors in the year ahead                                    By Allison Bell, Jeff Berman, Janet Levaux, John Manganaro and Melanie Waddell                                fter a brutal year for the stock market in 2022, this year brought a much-welcomed turnaround.                             The asset levels of financial advisors and their firms improved, and larger players continued to gobble                  A up smaller ones — especially those with sought-after services and technology.                    Some industry deals reflected deep problems at finan-  required minimum distributions in 2023 from accounts inher-                  cial entities such as First Republic Bank and Credit Suisse.   ited in 2020 or later. And they got to tell IRA owners turning                  JPMorgan  Chase  acquired  $295  billion  of  First  Republic   72 who unnecessarily started RMDs in 2023 that this money                  Bank’s  assets  in  May  after  paying  the  Federal  Deposit   could be returned to their accounts.                  Insurance  Corporation  $10.6  billion.  Two  months  earlier,   As in prior years, it’s difficult to pick out the biggest of                  UBS Group agreed to buy the nearly collapsed Credit Suisse   the big  news stories  from 2023. Our  coverage of important  Joe Biden, Julie Su: Al Drago/Bloomberg                  for  $3.2 billion, creating a firm with  about $5  trillion in   trends in technology, like innovation in generative AI and data                  global assets.                                     breaches stemming from the exploitation of MOVEit transfer                    Meanwhile, advisors kept busy with issues directly affecting   software, can be found on ThinkAdvisor. In this piece, we dig                  clients. They had to reassure some beneficiaries of individual   into developments tied to regulation and compliance, retire-                  retirement accounts, for instance, that they didn’t need to take   ment planning and some of the major industry players.                  20 Investment AdvIsor December 2023 | ThinkAdvisor.com","REGULATION \& COMPLIANCE                       dol Posts new Fiduciary rule Proposal                               advisors and brokers steer their cli-                                                                                      ents toward certain investments, not                  The  Labor  Department                     taking  additional  action   because  they’re  in  the  best  interest  of                  recently  released  its  new               to eliminate junk fees in   the client, but because it means the best                  fiduciary rule proposal, the               retirement  savings,”  the   payout for the broker. I get it. I under-                  Retirement Security Rule:                  president added.         stand it. But I want you to understand                  Definition of an Investment                  The administration’s cen-  [that] we’re watching.”                  Advice Fiduciary. President                tral  concern,  Biden  said,  is   Biden administration officials also say                  Joe Biden said just after its              that while “most financial   that the latest fiduciary plan aims to                  Oct. 31 publication that his administra-  advisors give their clients good advice   close loopholes and require financial                  tion “is taking on what we call junk   at a fair price and are honest with them,   advisors to provide retirement advice in                  fees” in the proposal. Today, “we’re   … that’s not always the case. Some   the best interest of investors.                                                                                           December 2023 Investment AdvIsor 21","Top News of 2023                       The plan seeks to amend the regula-  the prohibited transaction rules appli-  Labor from using any funds to imple-                  tion defining when a person renders   cable  to  fiduciaries  under  Title  I  and   ment its new fiduciary rule.                  “investment advice for a fee or other   Title II of ERISA. The plan amends   Industry trade groups and lawmak-                  compensation,  direct  or  indirect”  with   Prohibited Transaction Exemptions   ers were quick to weigh in on Labor’s                  respect to any moneys or other property   84-24, applying to annuities, as well as   plan. Rep. Virginia Foxx, R-N.C., chair-                  of an employee benefit plan, for purpos-  2020-02, concerning rollover advice,   woman  of  the  House  Committee  on                  es of the definition of a “fiduciary” in the   and other PTEs.      Education and the Workforce, said                  Employee Retirement Income Security   The proposals include a 60-day peri-  Labor’s plan “reaches  well beyond                  Act of 1974.                      od for public comments, ending on Jan.   its jurisdiction. Instead of regulating                    The proposal also would amend the   2, and Labor intends to hold a public   retirement plans, DOL is trying to regu-                  parallel regulation defining for pur-  hearing approximately 45 days after the   late what individuals do with their own                  poses of Title II of ERISA, a “fiduciary”   proposals were published on Oct. 31.   retirement savings.  This kind of over-                  of  a  plan  defined  in  Internal  Revenue   Trade groups pressed Labor on Nov. 8   reaching interference spells disaster.”                  Code  section  4975,  including  an  indi-  to grant at least a 60-day extension of   But  Rep.  Bobby  Scott,  D-Va.,  the                  vidual  retirement account, according   the comment period and to schedule the   ranking member of the committee,                  to Labor.                         public hearing for a date after the initial   said in another statement that Biden’s                    Labor also has published proposed   comment period closes, followed by an   plan will “close loopholes and pre-                  amendments to Prohibited Transaction   additional 30-day comment period.  vent unscrupulous financial advisers                  Exemption   2020-02   (Improving    At  press time  in mid-November, the   from ripping off their retirement cli-                  Investment Advice for Workers \&   House was expected to vote on a spend-  ents. Every hardworking American                  Retirees)  and  to  several  other exist-  ing bill to fund several federal agen-  deserves access to a secure and digni-                  ing administrative exemptions  from   cies that contains amendments blocking   fied retirement.”                    IrA rollovers                     the NUA tax break,” Slott warned.  lem is though, that wanting to do what’s                                                      “An advisor who rolls those funds   right and having the knowledge to do                  Advisor recommendations                    over to an IRA without ana-  that are both necessary.”                  on IRA rollover transactions               lyzing the NUA option could   Labor’s  new  rules,  he  explained,                  are fiduciary advice under                 end up losing that tax break,   “stress that advisors need to produce                  the Labor Department’s pro-                because they were just not   evidence that they have gone through                  posed new fiduciary rule,                  aware of it,” Slott relayed.   a process to help clients make the roll-                  and  “would  fall  within  the               “That’s  just  one example   over  choice that is  best  for  them.  The                  scope of investment advice,”               of  many  where  an  unedu-  best option will depend on each client’s                  according to Ed Slott of Ed Slott \& Co.  cated  advisor  could  inadvertently  run   particular financial and personal facts                    IRA  rollovers  “will  continue to  be   afoul of these DOL rules and be held   and circumstances.                  ‘among the most, if not the most, impor-  responsible, for thousands or hundreds                  tant financial decisions that plan partici-  of thousands of dollars lost to taxes due                  pants and beneficiaries, and IRA owners   to poor planning,” he continued.                                                      As in all the prior iterations of Labor’s  Annuity                  and beneficiaries are called upon to                  make,’” Slott told Investment Advisor in   fiduciary rule, “when it comes to IRA roll-  Commissions                  early November via email, citing the text   overs — it is imperative that advisors be                  of Labor’s proposed  rule. Labor, Slott   aware of all possible rollover options and   New draft fiduciary regulations issued by                  said, “is putting rollover advice right up   have a process of explaining and review-  DOL would let annuity sellers continue to                  there with investment advice.”    ing the pros and cons of each option to   earn commissions for selling non-variable                    Labor’s new rules “mean that advisors   their clients,” Slott said. “Only then can   indexed  annuities.  Independent  agents                  need to know the tax rules on each option   the client be served in their best interest.”  who operate under one set of Labor                  when rolling over 401(k) plan funds to an   While DOL’s rules “are meant to   Department regulations, PTE 84-24,                  IRA,  or  when  not  to  do  the  rollover,  or   somehow eliminate advisors who may   would have to become fiduciaries, but                  when to  take a lump-sum distribution,   be bad apples and put their own profit   they could continue to earn commissions.                  which for example means being educated   ahead of what’s best for their clients,” he   They would have to disclose their initial                  on  the  NUA  (net  unrealized  apprecia-  added, “that is not most advisors.”  commissions and renewal commissions,                  tion) tax rules when there is appreciated   Most advisors, Slott said, want to do   both in terms of dollar amounts and as                  stock in the 401(k) that may qualify for   “what’s best for their clients. The prob-  a percentage of the premium payments.                  22 Investment AdvIsor December 2023 | ThinkAdvisor.com","Similarly, agents who are more close-  The Retirement Security Rule draft   ties,  and  the  SEC  typically  sets  sales                  ly  affiliated  with  insurers,  broker-deal-  regulations, via the imposition of a   rules for securities.                  ers or investment companies, and who   fiduciary standard of care on indepen-  • It would affect non-variable indexed                  operate under a second set of Labor   dent  agents,  would  require  agents  to   annuities, because those are not classi-                  Department regulations, PTE 2020-02,   put  retirement  savers’  interests  first.   fied as securities. It also appears to apply                  would have to provide a notice acknowl-  The standard-of-care requirements   to an independent insurance producer                  edging that they would receive com-  might complicate agents’ lives and cre-  offering any annuity or insurance con-                  missions or other transaction-based   ate problems for commission-based   tract that’s not classified as a security to                  compensation  and  offering  to  provide   compensation arrangements, but the   a retirement investor.                  specific compensation information, for   PTE 84-24 draft makes it clear that the   •  The  department  is  asking  for                  free, upon request.                        Labor Department wants to   advice about whether and how to apply                    Insurers and other finan-                let the agents continue to   the new regulation update to “other                  cial  institutions could  not              earn commissions.        insurance products” not regulated by                  use any sales contests, quo-                 One part of the PTE 84-24   the SEC.                  tas, travel incentives or other            annuity agent compensation   • The regulation update would apply                  non-cash compensation that                 proposal is an estimate of how   both to annuities and to “employee wel-                  might cause the indepen-                   many independent produc-  fare benefit plans with an  investment                  dent producers using PTE 84-24 or the   ers might be affected. Labor Department   component,” such as health savings                  investment professionals subject to PTE   analysts estimate that only 1,577 insur-  account programs, according to a foot-                  2020-02 to have any incentive other   ance  and  brokers  use  the  exemption  to   note in the preamble.                  than meeting the client’s needs.  earn commissions for selling annuities.  •  The  department  notes  that  the                    Officials  at  the  Employee  Benefits   Here  are  other  possible  impacts  of   NAIC  expects  life  insurers  to  regulate                  Security Administration,  the arm of   the proposal:                the independent agents who sell their                  the Labor Department that oversees   •  It  likely  would  not  affect  variable   products,  without overseeing  sales of                  employee benefits and administration   annuity sellers, because federal law   products from other companies, and                  of the Employee Retirement Income   classifies variable annuities as securi-  says that approach seems to make sense.                  Security Act of 1974, were listening                  when insurance groups told them that                  commission-based transactions are   lawsuit risk                    a saver, if you spend your whole life                  better  than  fee-based  transactions  for                          accumulating savings and you’re going                  some clients.                     The Labor Department’s                     to someone for advice, and                    “Certainly, in many cases, it is in the   new fiduciary rule will          you’re paying them for that                  retirement  investor’s  best  interest to   face a lawsuit, according to     advice, you’re expecting that                  receive advice from investment profes-  Ben  Harris,  director  of  the      the advice they give you is                  sionals that are compensated through   Retirement Security Project           in your own best interest.                  commissions incurred on a transactional   at Brookings in Washington.        And this is a really impor-                  basis, rather than as part of an ongo-  “I think it’s virtually sure         tant decision. I mean, it’s lit-                  ing fee-based relationship (for example,   that you’ll see a lawsuit filed against it,”   erally a lifetime of saving that’s on the                  pursuant to an advisory relationship   said  Harris,  who  previously  served  as   line here.”                  subject to a recurring charge based on  assistant secretary for economic policy   At  the  time,  Harris  continued,  “I                    assets  under  management),”  EBSA   and  chief  economist  at  the  Treasury,   felt like the academic evidence and                  officials  wrote  in  the  preamble,  or   during a recent Brookings podcast.  the projections suggesting that people                  official  introduction,  to  the  proposed   The  suit,  Harris  said,  will  likely  be   would drop out of the market, that                  update to PTE 2020-02.            based on the industry’s claim that the   advisors would drop out of the market                    “In such  cases, the  fact that  the   rule is “overly stringent, and what this   owing to the fiduciary rule in 2016                  investment professional received a   means is that advisors will drop out of   probably wasn’t all that well-founded                  commission for their services is not   the market,” a similar claim that indus-  on the evidence.”                  inconsistent with the principles set   try was making in 2016, when the first   It’s true, however, “that some com-                  forth herein,” officials said. “Conversely,   DOL fiduciary rule was floated. (It was   missions might go down or they’d have                  a recommendation to enter into a fee-  thrown out in court in 2018.)  to be paid differently, but I didn’t feel                  based arrangement may, in certain   Harris  stated  that  he  didn’t  find  the   like there would be this overwhelm-                  cases,  be  inconsistent  with  the  Best   industry’s argument “terribly compel-  ing dearth of investment advice in the                  Interest standard.”               ling at the time, in part because, as   market,” Harris said.                                                                                           December 2023 Investment AdvIsor 23","Top News of 2023                       Similar arguments will be raised in   the laws governing retirement invest-  period  of  a  rollover,”  Harris  explained.                  potential lawsuits, “which is basically   ment advice to be more consistent with   “So, you have saved for your whole life                  focused on exits from retirement advi-  the landscape today, to be more consis-  in a 401(k), maybe you’re at one job,                  sors from the market, potentially leaving   tent with a retirement landscape where   maybe many. But let’s say that you’re at                  low- and middle-income savers with no   people have to make their own individual   the end of your career and you’re mak-                  advice,” Harris continued. “Now, if that   decisions and are turning to advisors for   ing a decision about what to do with                  happens, I think it’s a legitimate com-  advice,” Harris stated. “This is something   your  accumulated  retirement savings.                  plaint. I just don’t think [it] will happen.”  that people didn’t have to do 50 years ago   And you go to a retirement advisor and                    The new fiduciary rule is “less broad”   when [the Employee Retirement Income   you’re saying, ‘[L]ook, I want to put this                  than the 2016 rule, Harris relayed.  Security Act] ERISA was passed.”  in some type of product.’”                    The 2016 rule “effectively applied to   Today, “401(k)-like accounts are man-  Under  the  current  regulations,  “if                  any time anyone was providing retire-  aged by the worker, or the saver, or the   you’re just going in for one-time advice,                  ment advice to savers. It was incredibly   individual, which requires a fair amount   that might not be covered under this                  broad and it was ultimately any con-  of knowledge in terms of how to invest   umbrella  rule  that  demands  you  get  a                  versation that you had with an advisor   and financial decisions that need to be   certain level of advice,” Harris continued.                  would  be  covered,”  Harris  continued.   made. And so, when that type of onus is   “And what this [rule] does is it says that                  The new rule “is much more narrowly   put on the saver, you know, a lot of times   if the advisor provides regular advice, not                  targeted to certain products and target-  people  are not  experts  in this  field,  so   just to you, but as part of their course of                  ed towards that one-off type of advice   they turn to experts,” Harris said.  business, then they might be subject to a                  you might receive around the rollover   A “big” change with the new rule,   fiduciary standard. So, what it ultimately                  instance. So it’s more narrow.”   Harris said, “is around one-time advice.”  does is protect people who are looking                    What  the  new  rule  “ultimately  is   Prior to the new DOL fiduciary rule,   for that, you know, one-time piece of                  doing from a very high level is updating   “a person might go to an advisor at the   advice from an advisor around rollovers.”                                      RETIREMENT PLANNING                       Getting ready for the Big Cut in the                                  “The estate tax exemption has effec-                  estate tax exemption                                                tively never been lowered,” he explains,                                                                                      “but in my opinion that outcome seems                                                                                      increasingly likely, and it’s going to have                  The  historically  generous                joined  FTI  as  trust  counsel   a big impact on clients when it happens.”                  estate tax exemption estab-                in its Radnor, Pennsylvania,   Critically,  the  increase  in  the  exclu-                  lished by the 2017 tax over-               office,  following  a  long-  sion only applies to estates of decedents                  haul is on track to sunset at              term stint at Wells Fargo,   dying after Dec. 31, 2017, and before Jan.                  the  end  of  2025.  Under  the            where he worked in both the   1, 2026, and to gifts made during that                  law, the exclusion amount                  wealth and investment man-  period. As noted, this provision sunsets                  for  estate, gift and genera-              agement divisions as well as   in 2026, meaning the exclusion will go                  tion-skipping transfer tax purposes was   in the firm’s private bank.)  back to $5 million per person, indexed                  increased from $5 million to $10 million.   As Small points out, the estate tax   for cost of living.                  For people who have died in 2023, the   exemption has only been lowered once   According to Small and others, it is                  exemption was nearly $13 million. For a   in recent history — back in 2010, when   hard to overstate the importance of the                  married couple, that comes to a combined   both the estate tax and exemption were   2026 sunset provisions when it comes to                  exemption of a bit less than $26 million.  effectively eliminated for one year due   achieving optimal estate planning out-                    There could be a hugely disruptive   to  a  quirk  in  prior  legislation  from   comes for clients. Put simply, clients have                  effect on wealthy Americans’ legacy giv-  2001. Despite that fact, Small says, a   only a little more than two years to take                  ing plans due to this sunset provision,   big reduction in the exemption seems   advantage of the doubled exemption.                  explains Fiduciary Trust International’s   increasingly likely, given the significant   Crucially, a client doesn’t need to die                  Scott Small, but advisors can prepare   divisions  in  Congress  and  the  “simple   to take advantage of the historically gen-                  clients  for this  change. (Small  recently   power of inertia.”    erous  exemptions.  Rather,  they  simply                  24 Investment AdvIsor December 2023 | ThinkAdvisor.com","need to enact some of the strategies that   present a big opportunity to achieve tax-  revocable and  some  irrevocable. Just                  can move their wealth out of their own   efficient giving, the likes of which may   a few to mention are spousal lifetime                  estate  —  and  ensure  such  strategies  are   not present itself again in their lifetime.  access trusts, irrevocable life insurance                  appropriately documented and support-  “For those folks in that $15 million-  trusts  and generation-skipping  trusts,                  ed from a legal and regulatory standpoint.  plus area, they really should be starting   among many other options.                    As Small  explains,  married  clients   to think about what kind of giving they   As Small points out, those with                  with joint wealth of $10 million or below   may want to do now,” he says. “There are   charitable  intentions  also  have  a  lot  of                  face a lot less uncertainty than those   a lot of different tools they can lean on.”  options, from charitable remainder uni-                  with  wealth  of  $15  million  and  above.   If  the  intention  is  to  maintain  the   trusts to charitable lead annuity trusts                  For couples (or individuals) with this   wealth within the family, there are many   and charitable gift annuities. All of these                  degree of wealth, the next two years   different types of trusts to lean on, some   are growing in popularity.                    rethinking the 4% rule                                              also the fact that we are seeing longevity                                                                                      increasing over the data baked into the                  Advising clients on the best               al  rule is perhaps the most   4% withdrawal rule, and that is especial-                  ways to build and maintain                 famous example of what is   ly true for the top 10% of income earners                  the right income stream for                called a “fixed withdrawal   here in the U.S.,” he warned.                  their retirement involves                  rule.” “In other words, you   “We have seen six additional years                  both a growing list of invest-             have a portfolio and at the   of longevity for men in just the last two                  ment options and the recon-                moment you retire, you calcu-  decades.  That’s an  amazing  improve-                  sideration  of  some  long-held  industry   late a fixed withdrawal amount based on   ment in longevity, but it also means                  assumptions.  Michael  Finke,  a  pro-  this percentage,” he said. So, on a $1 mil-  some of the standards that went into the                  fessor of wealth management for The   lion portfolio, a client could expect to safe-  4% withdrawal rule research no longer                  American College of Financial Services   ly  withdraw $40,000  per year,  adjusted   hold today,” Finke added.                  and  its  Frank  M.  Engle  Distinguished   for inflation, and never run out of money.  As he points out, for a healthy couple                  Chair in Economic Security, says helping   “This is all based on an analysis that   retiring at 65 today, some 50% of them                  retirees determine what level of spend-  showed  that,  if  you  look  at  historical   will see at least one spouse live beyond                  ing in retirement is “safe” has become   returns  in  the  United  States  over  the   95 — the maximum age considered in                  a red-hot topic in the evolving world of   long term for a balanced portfolio, you   the original 4% rule research.                  wealth management.                should reliably be able to spend this   Finke also highlights the “arbitrariness”                    Finke  makes  that case  in  a  recent   much without depleting the portfolio in   and “big exposure” to sequence of returns                  ThinkAdvisor  podcast  and  credits  the   a 30-year retirement,” Finke explained.  risk. “The real degree of safety with the                  rethinking of the long-favored 4% with-  That  original  paper  backing  the 4%   rule depends a lot on when you retire and                  drawal rule to a variety of interrelat-  rule was written in the early 1990s,   whether you get unlucky or not,” he said.                  ed causes — some demographic, some   Finke  points  out,  and  since  that  time,   An advisor can have two client couples                  regarding product innovations and oth-  there have been some big changes in the   who have made the same preparations for                  ers involving research and significant   marketplace that make this 4% rule “no   retirement, but if one couple had retired                  changes in the advisory profession itself.  longer the standard of a safe withdrawal   on  Jan.  1,  2022,  and  ran  that  4%  analy-                    As Finke emphasizes, advisors are being   rate that it used to be.”  sis, they would face a very different out-                  called upon to help clients protect their   “This is something we addressed   look relative to the second couple who                  retirement income given the risk that they   [almost 10 years ago] in the research that   had waited until June 1, 2022, to retire,                  might outlive their savings and could expe-  I  did  with  David  Blanchett  and  Wade   Finke  notes.  Making  the  4%  projection                  rience negative portfolio returns late  in   Pfau,” he noted. “We point out that, in a   in January would have suggested a safe                  their working lives or early in retirement.  lower-return  environment  like  the  one   spending level of $40,000 per year, he                    Ultimately, Finke warns, advisors who   it is reasonable to expect we may be in   says,  whereas  the  same  analysis  run  in                  fail to provide adequate answers to these   for the coming decades, that is no longer   June would give a “safe” figure of $32,000.                  questions — and who fail to contextual-  necessarily a safe withdrawal rate.”  “If you think about it, this doesn’t make                  ize income planning with discussions   Simply put, the United States enjoyed   any sense, because that second couple                  about investment management, tax miti-  a strong period for returns in the 20th   actually has more money relative to the                  gation and legacy planning — will surely   century that was used as the basis for   first couple, because the first couple                  find their practices losing ground.  that research, Finke says, and it may no   would have been spending out of the port-                    As Finke notes, the 4% safe withdraw-  longer be valid going forward. “There’s   folio even as it fell with the market,” Finke                                                                                           December 2023 Investment AdvIsor 25","Top News of 2023                     explained. “To me, the most problematic   more in retirement, because they don’t   Finke said. “It allows you to build up                  element here is that you aren’t respond-  face that same idiosyncratic longevity   your base of inflation-protected income                  ing to new information about what has   risk,” he noted.            for life. In my research, I have found that,                  happened to your portfolio and also any   This extends into the topic of lifetime   for most higher-income individuals who                  changes in your expected longevity.”  income insurance and what advisors   can expect to live longer than the average                    Pensions used to be much more com-  need to know about it, Finke says: “You   American, they can expect to meaning-                  mon, Finke notes, and it’s useful to con-  can consider effectively buying insur-  fully increase their overall retirement                  sider what this same $40,000 in spending   ance against this risk — against the risk   wealth by delaying Social Security.”                  would look like were it to be guaranteed   of having to cut back below a certain   Finke, who says this move is a “no                  rather than being subject to market and   amount of spending in retirement. It’s   brainer,” plans to do so in his own retire-                  longevity risk. “Would the person who   known as a lifetime income benefit, and   ment. “The other thing I plan to do in                  is spending out of their private $1 mil-  generally it will come along on a fixed   my own retirement is buy insurance to                  lion portfolio spend the same as the   annuity or a variable annuity.”  protect  myself against outliving my sav-                  person with the guaranteed income?”   With a variable annuity, generally the   ings,” he explained. “For example, you can                  Finke asked. “The economists will tell   guarantee will be lower, and it is relatively   get a tax-favored insurance policy of this                  you no — the one who has the guaranteed   expensive to provide that lifetime income   nature through what is known as a quali-                  income for life is going to spend more   insurance regardless of the specific vehi-  fied longevity annuity contract or QLAC.”                  because they aren’t facing the same risk   cle, Finke says. “It costs about 1.5% for   With a QLAC, clients can take up to                  of running out of funds very late in life.”  a given insurance company to be able to   $200,000 of their tax-deferred savings                    Clients spending from their own port-  provide this expected benefit, according   and buy an annuity that will kick in with                  folio, if they experience excess longevity or   to the academic research,” he explained.  income starting at age 85. “At today’s                  a rough run in the markets, could see their   “What is the expected benefit? If you   interest rates it’s incredibly attractive                  accounts dwindling as they enter their   run out of money in your investment   to buy one of these policies,” Finke said.                  90s, and that could force some dramatic   account, the insurance company will then   He  also  notes  that  clients  can  use                  and unfortunate spending cuts at a vul-  reach into their general account portfolio   deferred  income  annuities  purchased                  nerable time.  “So, this naturally inspires   and continue to make those income pay-  during the accumulation phase. “You can                  people to spend less to avoid that risk, and   ments. So, you could really talk about that   get rates of returns that are comparable                  that is rational, because you are facing that   1.5% not really as a fee but as a premium   to what you earn on corporate bonds                  idiosyncratic risk and you can’t know how   for coverage,” Finke explained.  these days,” Finke said. “And there are tax                  long you are going to live,” he said.  Finke says there are other important   benefits associated here too, so it’s again                    “With all else being equal with respect   pathways to consider to address these   one of those under-utilized and under-                  to the wealth projected, you see the ones   questions.  “As  an  economist,  one  of  my   appreciated strategies if your goal is to                  with pension income spend significantly   favorites  is delaying  Social  Security,”   get income in a tax-efficient manner.”                                  INDUSTRY DEVELOPMENTS                       schwab starts layoffs                                               very talented people personally, and we                                                                                      take that very seriously.”                  Charles  Schwab  has  started              jobs, based on the company’s   Although the cuts were announced                  cutting about 5%-6% of its                 total reported headcount of   in August, it wasn’t until this week that                  total workforce, a company                 35,900 as of Sept. 30.   Schwab informed the affected employ-                  spokesperson confirmed in                    “We have said goodbye to   ees. Over the summer, “we shared our                  early November. The firm                   approximately 5-6 percent of   intent to take certain steps to remove                  declined to provide several                our workforce,” the spokes-  cost and complexity from our organi-                  details about the cuts, including the total   person said. “These were hard but nec-  zation,” the Schwab spokesperson told  Schwab: wolterke - stock.adobe.com                  headcount affected, what kinds of posi-  essary steps to ensure Schwab remains   ThinkAdvisor on Wednesday. “These                  tions were being eliminated and in what   highly competitive, with industry-lead-  steps include some changes to our real                  divisions  of  the  company.  But  a  5%-6%   ing levels of efficiency, well into the   estate footprint, streamlining our oper-                  reduction translates into about 2,000   future. They are decisions that impact   ating model, and staffing reductions,                  26 Investment AdvIsor December 2023 | ThinkAdvisor.com","largely in non-client-facing areas.”  In  early  September,  Schwab  Advisor   and specialized service from Schwab’s                    The “Wall Street Journal” reported in   Services executives said the conversion   support  teams;  pricing  benefits  across                  late October that it learned of the layoffs   of TD Ameritrade advisors to Schwab’s   Schwab’s bank and broker-dealer solu-                  after seeing an internal Schwab message,   custodian platform went remarkably   tions; expanded borrowing choices; and                  which also disclosed “some remaining   well, with no significant problems. “This   access to a range of wealth management                  employees will have new jobs or manag-  [Labor Day] weekend, we moved [over]   specialists on topics including tax, trust                  ers.” Lawrence Sprung, founder of Mitlin   7,000 advisor firms from the green plat-  and estate planning, equity compensa-                  Financial in Hauppauge, New York, said   form, [which is] the TD Ameritrade   tion, retirement planning and family                  on X, the network formerly known as   platform to the blue, or the Schwab,   support, according to the firm.                  Twitter, at the time that he was “so sorry   platform,” Bernie Clark, head of Schwab   The firm has been providing some of                  to hear about this,” and that his firm was   Advisor  Services,  said during  a media   these benefits to clients previously, but                  looking for a senior wealth advisor.  phone briefing.               the new service approach brings every-                    Schwab said it was planning to trim its   Schwab Advisor Services also tran-  thing together into a “premier expe-                  workforce, services and office locations   sitioned 3.6 million accounts held by   rience,”  said  Jonathan  Craig,  head  of                  to lower its yearly operating expenses   advisors’ clients and about another 3.6   Investor Services, in a statement.                  by some $500 million a year. Those   million on the retail side also, with “$1.3   At the time the news was made public,                  cost-cutting moves followed some of its   trillion in assets moving overall,” mak-  Schwab’s  total client  assets  were  $7.65                  final integration efforts tied                                               trillion. Assets in Schwab’s                  to its $22 billion purchase of   “A week before the August                   retail business — Investor                  TD Ameritrade.                                                               Services — stood at roughly                    “In order to achieve these  layoffs announcement, Schwab                   $4 trillion, while assets in                  cost savings, the company      reported lower net flows                      the firm’s investment advisor                  expects  to  incur  exit  and                                                business — Advisor Services                  related costs, primarily relat-  in both retail and advisory                 — were $3.6 trillion.                  ed to employee compensa-                                                       According to Schwab data,                  tion and benefits and facility   clients’ assets tied to its                 the high- and ultra-high-net-                  exit costs, of approximately                                                 worth client segments are                  $400 [million] to $500 mil-  TD Ameritrade acquisition.”                     among the fastest-growing                  lion,” the firm explained in                                                 client  groups  —  and  among                  an 8-K filing with the Securities and   ing it the largest conversion weekend   the most important to its bottom line.                  Exchange Commission.              for the company among the three it did,   Through  June  2023,  the  HNW  and                    “The company anticipates most costs   Clark  said.  As  of  now,  “80%  of  all  cli-  UHNW client segments have grown to                  related to position eliminations will be   ents have now transitioned over to the   represent  more than two-thirds  of the                  incurred in the second half of 2023,   Charles Schwab platform,” he added.  firm’s  total  retail  client  assets.  Clients                  and costs related to real estate will be   In  mid-July,  Schwab  announced  that   with more than $1 million at Schwab                  incurred in 2023 and 2024,” it said.  investor clients with more than $1 mil-  have grown at a rate of more than 10%                    Mayura  Hooper,  a  Schwab  spokes-  lion in assets at the firm will be automati-  annually over the last five years, while                  person, said in an emailed statement   cally enrolled into Schwab Private Client   clients with more than $10 million at the                  to  Bloomberg  in  August  would  “result   Services, while clients with $10 million   firm are growing at a rate of nearly 20%,                  in eliminating some positions in the   and up will be enrolled in Schwab Private   the firm said.                  coming months, mostly in non-client   Wealth Services. These clients will have   With the move to create two new                  facing areas. We don’t yet have specif-  access to a dedicated Schwab consultant   HNW and UHNW service units, Schwab                  ics to offer on how many positions will   who is responsible for their overall rela-  joins other its rivals in carving out spe-                  be eliminated.”                   tionship with Schwab, at no additional   cial service models for the wealthiest                    A week before the August layoffs   cost to them, according to a news release.  retail  clients.  Vanguard  offers  wealth                  announcement, Schwab reported lower   This consultant can help clients man-  management services, including a dedi-                  net flows in both retail and advisory cli-  age their financial life, help them choose   cated financial advisor and a wealth                  ents’ assets tied to its  TD Ameritrade   the right level of advice or services they   management team, for clients with at                  acquisition. The client attrition was in line   need, create a personalized financial   least $5 million, and flagship services                  with the firm’s expectations for the deal,   plan, and connect them to a range of   for those with $1 million to $5 million.                  which  was  announced  in  2019,  it  said.   Schwab’s wealth management special-  Fidelity  offers  private  wealth  manage-                  Schwab noted that this attrition should   ists, Schwab says. Other features of the   ment for those with at least $10 million                  subside in the first half of next year.  new program are priority assistance   in total investable assets.                                                                                           December 2023 Investment AdvIsor 27","Top News of 2023                     orion names new Ceo                                                 and  also  serves  on  the  strategic  advi-                                                                                      sory board of the private equity firm                  Natalie Wolfsen, formerly CEO             Pershing  (2009-2011),  Charles   Genstar Capital.                  of  AssetMark,  began  serv-              Schwab  (1999-2009)  and    Orion says all of its platform servic-                  ing  as  CEO  of  Orion  Advisor          American Express (1996-1998).   es — including Redtail Technology and                  Solutions in mid-October —                  “On  behalf  of  Orion’s  board   Orion OCIO — had some $3.8 trillion in                  when she also joined Orion’s              … , I am thrilled to welcome   assets under administration and $64.3                  board of directors. Outgoing              Natalie Wolfsen next month as   billion of wealth management platform                  CEO  Eric  Clarke  is  retiring           we usher in a new era of growth   assets as of June 30.                  by year-end but will remain a             and innovation at Orion,”   “I’m enthusiastic about Natalie join-                  member of Orion’s board.          explained  Orion  Executive  Board  Chair   ing Orion. [She] shares our vision for                    Wolfsen joined AssetMark in 2014 as   Charles Goldman in September. “Orion is   empowering financial advisors so they                  its  chief  commercialization  officer and   uniquely positioned … to meet the evolving   can serve their clients more effectively,”                  also served as its chief solutions officer   needs of independent fiduciary advisors.”   Clarke said in a statement. “She has my                  before being named CEO in early 2021.   Goldman — who was chairman, CEO   full support, and I’m committed to man-                  In addition, she has worked for financial   and director of AssetMark from 2014 to   aging a smooth transition for our clients                  services firms like First Eagle Investment   2021 — led the firm’s search for a new   and  team  members.  I  look  forward  to                  Management  (2011-2014),  BNY  Mellon   CEO. He joined Orion’s board a year ago   Natalie leading our team into the future.”                    Creative Planning Buys ex-United                                    an ideal home,” said Larry Roth, head                                                                                        “It looks like [United Capital] now has                  Capital Business                                                    of RLR Strategic Partners and former                                                                                       CEO of Cetera Financial Group. Creative                  Creative Planning and Goldman             investment banking, etc.”  Planning  and  United  Capital  “should                  Sachs struck a deal in late August          The deal is “exciting” on sev-  hold together very well. … I, for one, did                  for the RIA to buy the former             eral levels, said industry consul-  not see this deal coming.”                  United  Capital  business  from           tant Alois Pirker. “Planning is at   The news comes four years after                  the bank for an undisclosed sum,          the  core”  of  Creative  Planning   Goldman bought the business for                  with industry experts largely             and United Capital, so it’s a great   $750 million and three years after it                  praising the deal. The former             match, he said. “It’s not easy to   changed the name of the unit to Personal                  United  Capital  wealth  business         find a strategic home” for many   Financial Management. When Goldman                  included roughly $29 billion in assets under   RIAs and other businesses being sold today,   bought  United  Capital,  the  core  RIA                  supervision  at  the  time,  while  Creative   he  added.  “I  do  think  [United  Capital’s]   business had about $23.4 billion in assets;                  Planning had roughly $245 billion in total   planning focus and its FinLife [practice   its white-label wealth management plat-                  assets — $110 billion of which are owned by   management] platform are unique.”   form had $25 billion.                  private clients and the remainder by retire-                  ment plans and institutional clients.                    “It’s a good move for all three firms,”   Cetera strikes $1B Avantax deal                  said Mark Tibergien, a management con-                  sultant  and  the  former  head  of  BNY   Cetera  Financial  Group          financial professionals focused                  Mellon  Pershing  Advisor  Solutions.   moved to buy Avantax, for-           on tax and wealth manage-                  “This fits more into the [business] model   merly Blucora, in an all-cash    ment, as well as nearly $83.8                  of Creative Planning. It makes sense.”  transaction for $1.2 billion —       billion in assets under admin-                    Other industry watchers agree. With   a move that adds Fidelity            istration and $42.6 billion in                  this move, Creative Planning CEO Peter   as a custodial partner for          assets under management.                  Mallouk  “has  nailed  it,”  said  Morgan   Cetera.  The  news  was  announced  on   Currently,  San  Diego-based  Cetera                  Ranstrom, head of Trailhead Planners,   Sept.  11,  about  a  month  after  Cetera   has more than 9,000 financial profes-                  a national RIA. “A firm like the former   wrapped up its purchase of Securian   sionals  with  $341  billion  in  AUA  and   Cetera: MichaelVi - stock.adobe.com                  United Capital, which puts financial plan-  Financial Group’s retail wealth busi-  $121 billion in AUM. Thus, the combined                  ning first, was an unnatural fit for a bank   ness, which it says brought it close to   entity — assuming that most Avantax                  like Goldman that historically has made   $50 billion in assets.    advisors  and  staff  move  to  Cetera  —                  money on high-end brokerage operations,   Dallas-based Avantax has some 3,075   would  include  12,075  financial  profes-                  28 Investment AdvIsor December 2023 | ThinkAdvisor.com","sionals, $424.8 billion in AUA and $163.6   and manages about $1.4 billion in assets.   overall mass affluent clients,” explained                  billion in AUM.                   The RIA offers clients holistic financial   Roth. The platform helps professionals                    Cetera CEO Adam Antoniades empha-  planning services, as well as tax solutions   look at both tax-efficient investing and                  sized the custodial relationship Avantax   and payroll and bookkeeping services.  retirement distribution strategies, along                  has with Fidelity when highlighting the   Avantax  will  “significantly  build  out   with estate-planning issues, he says.                  significance of the deal: “This  acquisi-  Cetera’s  capabilities  in  tax  and  wealth   “The tax orientation and especially                  tion will establish a strategic relation-  management … ,” Durbin said in a state-  this technology, assuming it gets inte-                  ship between Cetera and Fidelity, which   ment. “This acquisition will activate this   grated  across  Cetera,  is  going  to  give                  will  enable  Cetera  to  expand  further   potential  and  represents  an  important   [the firm] a head start” in this area, Roth                  into a multi-custodial platform, enhanc-  milestone in Cetera’s growth trajectory.”  added. In other words, the Avantax deal                  ing Cetera’s capabilities to provide tools   Avantax officially changed its name   brings Cetera “a tax capability that [can]                  and functionalities for its affiliated advi-  earlier this year, after selling its TaxAct   serve all its clients” and should give it a                  sors,” he said in a statement.    software. Its independent broker-dealer   competitive edge.                    How will the multi-custodial platform   and  RIA  used  to  do  business  as  HD   Cetera, according to Durbin, aims to                  help Cetera? “It allows Cetera to more   Vest  Financial  Services  and  1st  Global   further expand its “wealth management                  easily acquire other Fidelity-using inde-  Advisors, respectively.  and tax expertise as a core component                  pendent  broker-dealers,”  Chip  Roame,   Avantax has built “a high-quality plat-  of its [five-year] growth strategy.” Like                  head of Tiburon Strategic Advisors told   form to evaluate [clients’] tax needs,   Roth, Durbin sees the Avantax deal as “a                  ThinkAdvisor in an email. “I bet there is   not just high-net-worth individuals but   terrific start.”                  lots more to come here!”                    Cetera  currently  works  with  BNY                  Mellon  Pershing  for  clearing  and  cus-  lPl Financial Adds More services, Assets                  tody  services,  according  to  its  most                  recent regulatory documents. It also   LPL Financial  recently               narios and one- to three-year                  has some self-clearing operations. In   announced a new tax plan-            illustrations,” the firm said.                  2018, the firm sold a majority stake to   ning service using the firm’s        With the new service,                  Genstar Capital, which Roame says is “a   in-house tax professionals         advisors can now “offer                  savvy investor in the broader wealth and   to help advisors better serve     sophisticated tax planning by                  investment management market.”    clients’ tax management                    leveraging LPL’s tax profes-                    With Cetera now poised to have a rela-  needs. Noting the rapid pace of change   sionals without hiring their own, which                  tionship with both Fidelity and Pershing,   in tax rules and their complexity, LPL   can be a potential growth driver by add-                  the firm would have a “powerful com-  said its new service “enables advisors   ing a valuable service that clients aren’t                  bination” of custodians “that should   to have tax planning discussions with   getting elsewhere,” the company said.                  serve it well,” said Larry Roth, head of   clients more confidently.”  LPL Financial had $1.24 trillion in                  RLR Strategic Partners, who was CEO of   The new service helps advisors pro-  advisory and brokerage assets as of                  Cetera from 2014 to 2016. “It seems that   actively address what LPL said is a ques-  Sept. 30, when its advisor headcount                  the strategic drive [behind] this deal is   tion on every client’s mind: “Am I paying   stood at 22,404.                  very thoughtful and powerful.”    more than I have to in taxes?” The ser-  “LPL’s Tax Planning Services can serve                    A  key  force  behind  Cetera’s  growth   vice pairs LPL’s tax professionals with   as an extension of the advisor’s team,”                  strategy is Cetera Holdings CEO Michael   advisors to consult and create proposals   said Kraleigh Woodford, LPL senior vice                  Durbin,  who  joined  Cetera  in  May   to improve their clients’ financial out-  president, planning and advice services,                  after spending over 14 years at Fidelity   comes, the firm said.    in a statement. “We believe that there                  Investments as an executive and senior   The tax professionals can help advi-  is an opportunity for financial advisors                  advisor. The recently hired executive is   sors identify clients who would benefit   to differentiate themselves by offering                  likely  to  “lead  Cetera  to  buy  more  IBDs   from the service, create a detailed analy-  in-depth strategies that can proactively                  and also to diversify into other business-  sis of their tax situation and offer road-  preserve and enhance client portfolios.”                  es,” such as deals with RIAs, firms with   maps to maximize investment outcomes   With Tax Planning Services, “advisors                  employee advisors, product companies   and improve tax efficiency, LPL said.  can now confidently deliver customized                  and retirement businesses, explained Chip   LPL’s  in-house  tax  professionals  can   tax  analysis and planning services to                  Roame, head of Tiburon Strategic Advisors  support advisors “through an entire   clients directly, instead of referring tax-                    Cetera  bought  its  first  RIA  in  early   range of services, from addressing ad   related issues to accountants or other tax                  June: The Retirement Planning Group of   hoc technical tax issues to providing   specialists,” explained. “We believe advi-                  Leewood, Kansas, which has 14 advisors   detailed, customized tax planning sce-  sors who can increase their value propo-                                                                                           December 2023 Investment AdvIsor 29","Top News of 2023                     sition and offer a one-stop-shop solution   LPL advisors pursue success. The data   retirement solutions, enhanced by the                  can ultimately strengthen client outcomes   indicated that, on average, firms outsourc-  improved capabilities  of the LPL plat-                  and enhance overall satisfaction.”  ing two or more core business functions,   form and utilizing LPL for clients’ bro-                    Although outsourced tax planning   such as CFO, CMO or administrative ser-  kerage and investment advisory needs,”                  support  can “help deepen  an advisor’s   vices, work a similar number of hours as   according to a statement.                  service offerings, it’s also ideal for those   lower-producing advisors but “generate   LPL estimates this new business                  looking to better serve high-net-worth   three times the revenue,” LPL said.  should result in $60 million a year or more                  clients and complements LPL’s robust   “We continue to expand our out-  in earnings after Prudential Advisors’                  high-net-worth offerings and capabili-  sourcing service offerings to meet the   $50 billion of assets have moved onto its                  ties,” according to LPL.          growing  demand from  advisors to  free   platform from Fidelity and other custodi-                    The firm also rolled out CFO Essentials.   up time and leverage outside thinking   al firms. The broker-dealer also expects                  The  new  Business  Solutions’  resource   and insights,” according to Joe Lanser,   the total cost of onboarding and integrat-                  provides “chief financial officer expertise   head  of  Business  Solutions.  “Advisors   ing the assets to be $125 million, with                  to emerging firms and growth-minded   can access professionals in marketing,   roughly 40% of these expenses set to be                  advisors seeking executive-level strategic   access administrative support, and offer   recognized in the second half of 2024.                  counsel,” LPL said in late October. CFO   financial planning without adding staff.”  For LPL, the Prudential deal “is a sig-                  Essentials “delivers individualized   In August, LPL announced that   nificant milestone in our mission to offer                  financial benchmarking, budgeting, and   Prudential Financial was set to move   sophisticated wealth management capa-                  forecasting strategies provided by expe-  some $50 billion in investment advi-  bilities to more enterprise firms and their                  rienced financial professionals,” it added.  sory and annuity assets now custodied   advisors,” Ken Hullings, LPL’s executive                    Dan Arnold, LPL’s CEO and president,   by Fidelity’s National Financial Services   vice  president  of  Enterprise  Business                  mentioned  CFO  Essentials  in  July,  dur-  unit, other firms and Prudential to LPL.   Development, said in a press release.                  ing an earnings call with analysts, but   For its part, LPL will expand its platform   “Prudential  has a revered reputation  of                  few details were given at the time. Arnold   and services  to  some 2,600  Prudential   being a pillar of the financial services                  noted it was an example of one of the   Advisors’ financial professionals.  industry. They have also been a valued                  firm’s new streamlined versions of existing   After the transition — set to wrap up   partner of LPL’s since 1989 in the life and                  solutions to “help advisors who may have   in the second half of 2024 — Prudential   annuity space. We look forward to our                  less complex” client needs than others.  Advisors will continue to “offer finan-  expanded  relationship  and  welcoming                    LPL’s flagship CFO Premium solution   cial planning, investment, insurance and   Prudential Advisors to our platform.”                  was “designed for complex, multi-lay-                  ered practices,” the company noted. On                  the other hand, CFO Essentials is a “low-  Focus Financial’s Adolf steps down                  er-priced, lighter-touch bundle of ser-                  vices providing advisors with a dedicated   Focus Financial Partners said   ty to thank Rudy Adolf for                  CFO  who  offers  fundamental  support   on Oct. 23 that co-founder and     his vision in building Focus                  and actionable roadmaps for optimiza-  CEO  Rudy  Adolf  has  passed        Financial into an impressive                  tion, growth, and efficiency,” it explained.  the reins on an interim basis to   wealth management organi-                    The price difference between the two   Dan Glaser, an operating part-     zation that always puts our                  offerings wasn’t cited by the firm in its   ner  with  Clayton,  Dubilier  \&   clients’ interests first,” Glaser                  news release, and LPL didn’t immedi-  Rice — the private investment         said in a statement. “Rudy is                  ately respond to a request for comment.   firm that bought Focus for        an industry pioneer and leaves                  Advisors using the CFO Premium solu-  $7 billion in August. Focus Financial’s   a strong legacy of innovation and entre-                  tion have seen promising results so far,   board has started its  search  for a  new   preneurship at Focus.”                  including in some cases increased aver-  leader, with Adolf set to fully retire at   Some of Focus Financial’s roughly                  age annual business valuations upwards   year-end. Adolf founded the RIA aggre-  90 partner firms — which work with                  of 30%, according to the firm.    gator in 2004 and took it public in 2018.   over $350 billion in assets — are Bartlett                    The CFO Essentials rollout follows the   Glaser has worked with firms in   Wealth  Management,  Buckingham                  release  of  the  Build  Your  Extraordinary   the financial services industry for four   Strategic  Wealth,  Connectus  Wealth                  Business study developed by LPL Business   decades,  according  to  CD\&R.  Before   Advisers,  Crestwood  Advisors,  Douglas                  Solutions, examining the common strate-  joining the private equity firm in January,   C.  Lane  \&  Associates,  GW  \&  Wade,                  gies that top-performing advisors use to   he was president and CEO of the profes-  Joel Isaacson \& Co., Kovitz Investment                  achieve results. The research found com-  sional  services  firm  Marsh  McLennan.   Group, The Colony Group and Williams                  monalities among how the top 10% of   “I would like to take this opportuni-  Jones Wealth Management.                  30 Investment AdvIsor December 2023 | ThinkAdvisor.com","THe PlAyING FIelD                                                             By Melanie Waddell                      the 2 Biggest Fights Brewing over dol’s                   new Fiduciary rule                    The rollover changes are controversial, but the “single-biggest fight” will                   come from insurance agents, a lawyer predicts.                                                          ndustry officials have been poring   drafted the rule’s preamble accordingly.                                                        over the Labor Department’s new   For instance, Labor points out “how                                                    Ifiduciary rule since it was released   their new proposals are aligned with the                                                    on Oct. 31, and while there are many note-  SEC’s  Regulation  Best  Interest,”  Slott                                                    worthy aspects to the plan, its treatment   explained.  Reg  BI  “says  a  rollover  rec-                                                    of rollover advice  and insurance agent   ommendation is subject to the best-                                                    status is catching the most attention.  interest standard of care.”                                                      One of the most glaring parts is that   Tim  Hauser,  associate  solicitor  at                                                    Labor’s new fiduciary proposal, the   Labor’s  Employee  Benefits  Security                                                    Retirement Security Rule: Definition   Administration, stated at a recent event                                                    of  an  Investment  Advice  Fiduciary,   that Labor’s goal was to “significantly”                                                    “makes a single recommendation a   align Labor’s new fiduciary  rule  with                                                    fiduciary recommendation,” ERISA   Reg BI.                                                    attorney Fred Reish of Faegre Drinker   Labor “felt like to the extent advi-                                                    told me in a recent interview. “That is   sors in this marketplace were making a                   The DOL’s new fiduciary          particularly important regarding roll-  strong, good-faith effort to comply with                                                                                      what Reg BI requires, they ought to be in                                                    over recommendations.”                     definition “is based on          This aspect of the new rule will be   good shape” in complying with Labor’s                        a fiduciary having a        challenged  in court,  Reish  and others,   new  fiduciary  rule,  Hauser  said  at  the                                                    including Ed Slott of Ed Slott \& Co., pre-                                                                                      American Law Institute’s life insurance                        relationship of trust       dict. As Slott told me, “Yes, it’s a single   products conference in Washington.                                                                                        DOL also points out that its new fidu-                    and confidence with the         rollover, but it also may be the single   ciary definition “is based on a fiduciary                                                    largest financial transaction a client has                       investor, [and] that is      ever made — it’s their life savings on that   having a relationship of trust and confi-                     exactly out of the [U.S.       advisor doing what’s in their best inter-  dence with the investor,” Reish contin-                                                                                      ued, and “that is exactly out of the [U.S.                                                    est. And it often doesn’t happen again.”                     Court of Appeals] Fifth          Slott agreed that the single recom-  Court of Appeals] Fifth Circuit decision”                            Circuit decision”       mendation requirement will likely spark   that torpedoed Labor’s 2016 rule.                                                                                        The  Fifth  Circuit  decision,  Reish                                                    a lawsuit and that “it’s overregulation                     that torpedoed Labor’s         and it hurts the advisors that are doing   explained, said that “it takes a relation-                                    2016 rule.      the right thing already.” That being said,   ship of trust and confidence to have a                                                    “financial advisors should be doing this   fiduciary” arrangement. “Short of that,                                   —Fred Reish      anyway with such a large financial move   you’re  not in a fiduciary relationship,                                                    the client is making,” Slott continued.   you’re in a sales relationship.”                                                    “Often this rollover amount is larger                                                    than the purchase of their home.”   ‘reGUlAr BAsIs’ And                                                      Labor, he has said, “is putting roll-  one-tIMe AdvICe                                                    over advice right up there with invest-  Attorneys at K\&L Gates agreed in a                                                    ment advice.”                     recent alert that Labor’s plan will face                                                      Yet  the  DOL  has  anticipated  poten-  challenges from the industry and in the                                                    tial lawsuits, Reish relayed, and has   courts. The proposed rule would replace                                                                                           December 2023 Investment AdvIsor 31","an almost 50-year-old regulation —   What’s a statutory employee?   cover certain transactions involving                  known as the “five-part test” — defining   Basically  “a  career  agent  —  in  other   pooled employer plans and transactions                  when a person is deemed to provide   words, an agent who’s contracted to sell   involving ‘pure’ robo-advice providers,”                  fiduciary  investment  advice  under  the   the products of one insurance company,”   the K\&L Gates attorneys explain.                  Employee Retirement Income Security   Reish explained. As a statutory employ-  Proposed amendment to PTE 2020-02                  Act, the K\&L Gates attorneys explain.  ee, “they can then be in that insurance   in Labor’s new rule also includes changes                    Under the five-part test, the attorneys   company’s 401(k) plan or get health care   and clarifications regarding the exemp-                  explain, a person is a fiduciary only if they:  benefits because they are deemed to be   tion’s conditions, such as clarifications                    •  Render  advice  as  to  the  value  of   an employee,” he said.  regarding the fiduciary acknowledgment                  securities or other property, or make   The opposite, then, is an “indepen-  requirement and a new requirement to                  recommendations as to the advisability   dent  producer or  agent,” Reish  contin-  provide a written statement of the best                  of investing in,  purchasing,  or selling   ued. “The  difference  being, from  the   interest standard of care owed by the                  securities or other property;     DOL perspective, they view employees   investment professional to the retirement                    • On a regular basis;           and statutory employees as being close   investor, the K\&L Gates attorneys write.                    •  Pursuant  to  a  mutual  agreement,   enough to the insurance companies that   PTE 2020-02, which was partly over-                  arrangement, or understanding with the   the insurance company can act if they   turned by a Florida district court deci-                  plan or a plan fiduciary that     supervise their activities — and there-  sion,  still faces  a challenge  in court.                    •  The  advice  will  serve  as  a  prima-  fore the insurance company can sign on   In February 2022, the Federation of                  ry basis for investment decisions with   as a co-fiduciary under PTE 2020-02.”  Americans  for  Consumer  Choice,  an                  respect to plan assets; and         However, the insurance industry, “and   advocacy group representing  indepen-                    • That the advice will be individualized   I think rightly so, has convinced the   dent insurance distributors, filed its                  based on the particular needs of the plan.  Department  of  Labor  that  independent   challenge in the U.S. District Court for                    Notably, the K\&L Gates attorneys   agents aren’t close to the insurance com-  the Northern District of Texas.                  point out, Labor’s new “change from   panies — they have 5 or 10 different   The Federation’s case asked the court                  the five-part test’s ‘regular basis’ prong   insurance companies to sell different   to vacate PTE 2020-02 in its entirety                  to persons providing investment recom-  products from and they get to pick which   and enjoin DOL from implementing or                  mendations  ‘on  a  regular  basis  as  part   ones they want to sell. So there’s real-  enforcing it in any manner.                  of their business’ (as opposed to regular   ly no hands-on supervision by any one   Kim O’Brien, president of FACC, told                  advice to any particular  client)  would   insurance company,” Reish explained.  me that the trade group was “given the                  accomplish DOL’s goal of making one-  So for independent agents, “they’re   go-ahead” in early November to brief                  time advice, such as rollover advice,   still under 84-24, but it’s beefed up — a   the Texas federal court on Labor’s newly                  covered by the fiduciary standard.”  lot; this will be the single biggest fight of   proposed fiduciary rule.                                                    everything to do with these new propos-  “Our suit is very much alive, chal-                  InsUrAnCe AGents \& tHe ‘sInGle    als,” Reish opined.               lenging the preamble to PTE 2020-02,”                  BIGGest FIGHt’                      Why? “Not only must the indepen-  O’Brien told me in a Nov. 10 email mes-                  Another significant change in Labor’s   dent  agent  do more,  … but,  the  insur-  sage. Labor’s “current guidance on who                  fiduciary package is the changes to   ance company selling through that   is a fiduciary is contained in the preamble                  Prohibited Transaction Exemption   independent agent doesn’t have to be a   to PTE 2020-02, which is theoretically in                  84-24.  “Historically,  if  an  insurance   co-fiduciary but they have heightened   force today. We are arguing the current                  agent  became  a  fiduciary  by  virtue  of   supervisory responsibility.”  guidance is overreaching and attempts to                  recommendations, they could use [PTE]   Bottom  line,  according  to  Reish:   turn most agents into fiduciaries contrary                  84-24  to be  able  to get  their  commis-  “Nobody under 84-24, under these   to ERISA and the Fifth Circuit decision.”                  sion,” Reish explained.           proposals, going forward is going to   It’s  FACC’s  “position  that  all  these                    The new proposed amendments to   be happy.”                       attempts by DOL to turn everyday agents                  84-24, however, “break insurance agents                             into fiduciaries cross the line and [are] not                  into two categories,” Reish said. In   Pte 2020-02                  allowed  by  ERISA,”  O’Brien  explained.                  one category, which Labor refers to as   Relief under PTE 84-24 “would also   “As we say in our pleadings, the DOL                  employees or statutory employees of   require compliance with ‘impartial   keeps trying to do the same thing in dif-                  insurance companies, “they have to go   conduct standards’ that match require-  ferent ways, which we characterize as                  over to PTE 2020-02 — they’re no longer   ments  in PTE  2020-02,”  according to   the ‘same old wine in a new bottle.’”                  under 84-24 as  proposed.” (PTE 2020-  the K\&L Gates attorneys.                  02 is the Trump-era rule that declared   PTE 2020-02, meanwhile, under the   Washington Bureau Chief Melanie Waddell                  rollover advice fiduciary advice.)  new proposal, “would be expanded to   can be reached at mwaddell@alm.com.                  32 Investment AdvIsor December 2023 | ThinkAdvisor.com","THe FAST TrAcK                                                              By Angie Herbers                      leadership Means taking an Honest look                   at real Problems                    The best managers put aside quick-fix tasks and do the hard work of                   identifying deeper challenges.                                                            ’m often asked, “What’s the biggest   answer  was  surprising  and  instructive:                                                        practice management mistake that   He  didn’t say that the firm’s executive                                                    Ifirms make?”                     compensation plan needed reconfigur-                                                      My  two-plus  decades  of  consulting   ing and updating, as he’d told us earlier.                                                    for financial  advisor businesses  has   Instead, he said, “I see partners who’ve                                                    shown me that the biggest error isn’t   been in conflict for years.”                                                    really a practice management mistake.   For changes to compensation or for                                                    It’s a leadership misstep.        other practice management shifts to be                                                      Many  firm  leaders  seek  to  apply   effective, the firm had to first address                                                    quick-fix solutions to their businesses   the long-term tensions among the part-                                                    instead of looking inward to identify the   ners — since this was the cause of the                                                    real problem they need to address.   inertia around a new compensation plan                                                      Plus, when advisory business leaders   and other issues.                                                    take action to address problems, their                                                    fixes are usually tied to practice man-  oUt oF FoCUs                       Behind every great           agement — such as implementing a new   What’s most important to note is that the                          business is great         compensation plan, marketing strategy   firm’s leader indeed made a flawed leap                                                                                      by deciding to focus on compensation                                                    or sales process.                            leadership, the           Here’s an example. A client firm lead-  rather than on partnership disagree-                   essential quality that           er recently came to Herbers \& Co. with   ments and communication problems. In                                                    a desire to update his firm’s partnership                                                                                      essence, he made a leadership misstep.                       makes firms stand            compensation plan after the business   alone; there are countless people, inside                                                                                        No leader can accomplish great things                                                    hadn’t reviewed its arrangement in a                          out and succeed.          few years.                        and outside of their firms, who help                                                      We went through our normal infor-  along the way. But making decisions and                                                    mation-gathering process and devel-  taking responsibility for those decisions                                                    oped a plan. But months later, the plan   is what leaders must do alone. And they                                                    had not been executed.            ultimately earn credit or blame for the                                                      The leader of the organization hesi-  results of these decisions.                                                    tated when we asked him about this.   If leaders are uncertain about their                                                    He didn’t request us to tweak the plan,   decision-making ability, they tend to                                                    and he wasn’t giving  us any feedback   throw solutions into the air to see if it                                                    (or pushback) about issues tied to its   might solve problems, solicit the advice                                                    implementation.                   of friends in leadership roles, join study                                                      Naturally, we needed to find out what   groups or follow the decisions of other                                                    was going on, and so we changed our   managers in their firm.                                                    tack. In a meeting, I asked the leader to   In other words, they distract them-                                                    pretend he was standing on a balcony,   selves from admitting, finding and                                                    looking down at his business.     facing their firm’s deepest problems by                                                      Next,  I  asked  him  what  he  saw.  His   focusing instead  on quick solutions or                                                                                           December 2023 Investment AdvIsor 33","tasks related to but not as critical as the                  real challenge.                    It’s easy to understand why. In human                  psychology, the struggle to perceive and                  comprehend issues accurately is known                  as a self-awareness deficit. It can hinder                  self-reflection and personal insight.                    A similar dynamic applies to firm                  leaders. Seeing what a firm really needs                  to do to achieve its business goals can be                  very difficult.                   IdentIFYInG ProBleMs                  But  seeking  quick  fixes  rather  than                  searching for and understanding the                  greater challenges doesn’t help leaders or                  their ability to better manage their busi-                  nesses. What  does  help leaders achieve                  practice management success is making                  the decision and commitment to better   As you focus on a new year, commit to                  understand true business problems.                    Financial  advisors  and  firm  leaders   prioritizing how you can enhance, build                  are used to being experts. Every day,                  they recommend solutions that can and   and develop leadership abilities. Don’t                  do improve their clients’ financial lives.                  Thus, it can be hard for them to pivot   spend your time being the all-knowing                  from  being  a solution  giver  to  being  a                  problem identifier.                                     solution giver.                    A solution giver says things like: “We                  need a better client experience. We need   We spent just over a month develop-  Instead,  that  time  could have  been                  to acquire a firm. We need to build a new   ing  a  new  partnership  compensation   used addressing communication issues                  compensation model for our talent.”   plan. A month later, when it still was not   among partners, strategic business plan-                    A problem identifier might say: “We   implemented, we started questioning   ning to get aligned and focused on cohe-                  have a low close ratio. We have conflicts   why. Finally, nearly three months after   sive firm goals, and helping each partner                  with partners. We have high employee   we started this process, the firm’s leader   address conflict in a productive and                  turnover. Our lead ratio has fallen.”   admitted the real problem.   open way.                    Just  like putting the  horse before   Think  about  this  in  terms  of  wasted   Behind  every  great  business  is  great                  the cart, identifying the problem first   time  and  resources.  How  much  time   leadership, the essential quality that                  and then implementing the solution is   could have been saved by the firm leader   makes firms stand out and succeed.                  the most effective way to solve practice   if he’d chosen to be solution oriented,   As you focus on a new year, commit to                  management problems.              rather than problem driven?       prioritizing how you can enhance, build                    The client I mentioned earlier had                                and  develop  leadership  abilities.  Don’t                  put the cart before the horse. He wanted   lessons leArned          spend your time being the all-knowing                  an executive compensation plan — a   Unfortunately,  when  it  comes  to  prac-  solution giver.                  solution he identified before zooming   tice management issues, leadership   If you work on skills tied to identify-                  in on the firm’s most pressing problem.   missteps are the greatest barrier to mov-  ing the real problems at your firm — and                    When the comp plan failed to launch,   ing ahead toward workable solutions.   what’s really holding your team back —                  the firm leader was forced to recognize   Had  the  leader  decided  to  discuss  the   you should find that many of your practice                  the firm’s  real  problem.  Yet  identifying   firm’s deepest problem, rather than tak-  management issues will disappear.                  the problem, as uncomfortable as it was,   ing a task-focused approach, would we                  presented  us with  the opportunity  to   have spent an entire quarter focused on   Angie Herbers is an independent consultant to                  help the client’s firm and his partners to   developing a new partnership compen-  the advisory industry. She can be reached at   Adobe Stock                  address what they were avoiding.  sation program? Likely not.       angie@angieherbers.com.                  34 Investment AdvIsor December 2023 | ThinkAdvisor.com","Conclusions                              brOKer-DeAler beAT                     By Ryan W. Neal                    lPl keeps Up strong recruitment                    business development head richard Steinmeier pointed to the firm’s new                   affiliation models for advisors.                          PL Financial just had one of its best                         rich  platform,  the  stability  and  scale                        quarters for bringing new assets to                           of our industry-leading model, and our                  Lits brokerage business.  The  inde-                                capacity and commitment to invest back                  pendent broker-dealer recruited $31.2 bil-                          into the platform,” according to Arnold.                  lion in assets during the third quarter of                          “As a result, we continue to make solid                  2023, LPL disclosed when it reported                                progress in helping advisors and enter-                  earnings in late October. This includes $12                         prises solve challenges, and capitalize on                  billion in assets coming from the addition                          opportunities better than anyone else,                  of Bank of the West and Commerce.                                   and thereby serve as the most appealing                    It’s the best quarter for recruitment                             player in the industry.”                  since Q2 2022, when LPL attracted   dation in the marketplace that we can                  $43.5 billion thanks to the addition of   serve all advisors in the marketplace,”   CAsH HoldInGs                  TruStage  (formerly  known  as  CUNA   Steinmeier explained. Without com-  Wealth management businesses at many                  Mutual  Group),  a  credit  union-focused   menting on any specific firms, he added   of the wirehouses posted disappointing                  firm that added $36 billion to LPL.   that consolidation among custodians is   quarterly results thanks to interest rates                  Excluding  those  large  enterprise  deals   also driving inbound interest to LPL’s   driving clients more into cash, but LPL’s                  makes Q3 2023 the best in LPL his-  RIA business.                   avoided a similar impact. While client                  tory, said Richard Steinmeier, managing   “It slowed down a bit towards the   cash holdings have fallen to $47.3 billion                  director of business development.   end of the summer as folks prepared for   from a Q2 2022 peak of $69.6 billion, LPL                    “We are strengthening in the way that   transitions that they were going to go   advisors hold a lower percentage of cash                  individual advisors and groups of advisors   through,” the LPL executive said. “Over   than those at other firms, Steinmeier said.                  are choosing to come to [LPL] in a much   the last month or so, those conversations   “Our cash balances are largely held not                  more material way even than Q2 2022,”   have started to tick up again.”  [for] chasing yield but actually for transac-                  Steinmeier said in an interview. “This was   LPL’s total assets remained steady   tional cash capabilities,” he said. “There’s                  a much more balanced quarter.”    at $1.2 trillion from the previous quar-  a cash balance that’s going to be held to                    Advisor headcount at LPL rose to   ter, with $33 billion in organic net new   make sure that you’re not having to pen-                  22,404, an increase of 462 from the pre-  assets helping to offset losses in equity   etrate the investments or having to rebal-                  vious quarter and 1,360 from the year-  markets, Dan Arnold, the firm’s presi-  ance the portfolio to meet those needs of                  ago period. Steinmeier attributed the   dent and CEO, said on a conference call   the individual clients. As such, we don’t                  successful recruitment to its new affilia-  with analysts about its latest quarterly   see in the cycle cash jump tremendously                  tion models, which accounted for $5 bil-  earnings. The company has added $97   at this firm or drop precipitously.”                  lion in recruiting during Q3. These are   billion in organic net new assets over the   LPL also recorded a $40 million regu-                  advisors who wouldn’t have considered   past 12 months, a gain of 9%.   latory charge in anticipation of a settle-              Adobe Stock  support their practice, he said.   the appeal of our model grow due to the   Commission  over  an  industry-wide                                                      “This quarter we continued to see                                                                                      ment with the Securities and Exchange                  LPL five years ago because it couldn’t                                                                                      probe into how brokers are preserving                                                    combination of our robust and feature-                    “We’re starting to see some real vali-                                                                                        December 2023 Investment AdvIsor 35","brOKer-DeAler beAT                          electronic communications stored on   provide clients with a similar experience   planning. About 70% of indie advisors in                  personal devices or messaging apps   and  seamless  transition,”  he  explained.   the U.S. lacked a succession plan at that                  that are not firm-approved. A company   “With so many seasoned advisors   time, according to LPL.                  spokesperson declined to comment.   expected to retire within the next 10   Liquidity \& Succession is intended for                                                    years, LPL Liquidity \& Succession not   advisors looking to monetize the busi-                  exPAnded ProGrAM                  only helps ensure the continuation of   nesses they built, either to retire or to just                  LPL Financial’s Liquidity \& Succession   independence — it creates opportunities   free themselves of their business-owner                  program is now available to advisors   to position the next generation of inde-  duties to refocus on their clients and                  not  affiliated  with  LPL,  the  firm  said   pendent-minded advisors for success.”  grow their businesses, LPL explained.                  in the third quarter. The program was   The  LPL  spokeswoman  added:  “Most   Via a “market-competitive M\&A trans-                  launched internally in May 2022 as a test,   of our products target advisors who are   action,” LPL Liquidity \& Succession pro-                  according to a company spokeswoman.  already here but this one is likely to be a   vides advisors who are out to sell their                    “We are really excited by the results   driver to bring additional advisors to LPL.”  practice  the  ability to  maintain  their                  and are confident  this program will   The  new  program, she  explained, is   brand, investment philosophy and client                  be a positive addition to the industry,”   “very  different  from”  LPL’s  Assurance   service model while benefiting from LPL’s                  Jared Fingeret, senior vice president   Plan, which she noted is ”for an   strategic and operational support, it said.                  of Liquidity \& Succession, Strategic   unplanned exit from the industry” due   The focus is on advisors who plan to                  Programs at LPL, said in a statement.  to death or incapacitation.  retire within three to seven years, but the                    “Advisors who are nearing retirement   LPL  launched  Assurance  Plan  in   program is open to advisors at any stage of                  are paired with other, philosophically   2020, as the advice industry struggled to   their careers, the firm said. — Jeff Berman                  aligned, independent advisors to help   get more advisors to embrace succession   contributed to this report.                      Raymond James Names New Head of Indie Advisor Unit, Forms Partnership to                    Use Tax-Smart Portfolio Tool                    raymond James said in early November that the head of its   assets under administration.                    Independent contractor Division, Jodi Perry, will step down   In mid-October, raymond James picked J.P. morgan Asset                    Jan. 1 and take on a newly created role as head of advisor   management’s 55ip technology to enhance its managed                    recruiting for the firm. Northeast Division Director Shannon   account platform with integrated tax management capabilities.                    reid will become president of the firm’s independent advisors   the arrangement is “an industry-first partnership” that should                    and join raymond James’ Executive committee.     help raymond James’ advisors make regular changes — like                      “Jodi has generated outstanding results in every role she   rebalancing and tax-loss harvesting — to clients’ managed                    has held in her nearly 30-year career at raymond James —   accounts, leaders of the two firms said at the time.                    including considerable time as a top recruiter and during her   the 55ip software, acquired in 2020 when J.P. morgan                    more than five years leading IcD,” according to chair and   bought the technology firm, is expected to be fully deployed                    cEO Paul reilly. “I’m confident she will continue to strengthen   by raymond James across its full suite of managed account                    this key growth engine for the firm.”            services by mid-2024.                      As for reid, she joined the firm in 2009 from Goldman   Overall, the deal underscores two trends in wealth manage-                    Sachs and has served in a variety of senior leadership roles,   ment: first, the growing demand for tax management capabili-                    including head of retirement Solutions, vice president of   ties and, second, the expanding need for industry players to                    cash management and vice president of Private client   work with third parties rather than build new tools alone, invest                    Group Planning.                                  in a complete overhaul or take other highly disruptive and                      “Shannon has an impressive background and has been a   expensive steps, according to executives from the two firms.                    stellar leader in an important market for IcD,” said Private   the raymond James’ managed account program cur-                    client Group President Scott curtis in a statement. “I’m confi-  rently has about $144 billion in assets, $71 billion of which                    dent she will continue to grow the business on the trajectory   are taxable; it also includes over 350 investment strategies.                    Jodi set during her tenure.”                     According to J.P. morgan, 55ip assets have increased from                      raymond James’ PcG business includes over 8,700   less than $2 billion in 2020 to more than $20 billion today.                    financial advisors working with roughly $1.2 trillion of   —Janet Levaux and John Manganaro                   36 Investment AdvIsor December 2023 | ThinkAdvisor.com","rIA leSSONS \& leADerS                   By Jeff Berman                      Commonwealth to open, Hire staff for new                   Home office                    The expansion comes as other big firms close offices and conduct layoffs.                            ommonwealth      Financial                                      He  added:  “Our  thinking  going  into                        Network plans to hire staff                                   it was they’re independent advisors.                  Cfor and open a new corporate                                       They didn’t want us  necessarily  [tied                  headquarters in Cincinnati by June 30,                              to] the income side of their earnings.                  according to Wayne Bloom, CEO of the                                They  wanted  to  be  more  arm’s  length.                  hybrid  registered  investment  advisor                             For the most part, that’s true, but we’ve                  and independent broker-dealer. The                                  also had some advisors” who said they                  new home office will include the firm’s                             wanted a “deeper partnership” with                  two largest call centers, a technology                              Commonwealth.  “So  we’d  like  [these                  help desk and service center, Bloom said                            transactions] to be purely earnings-                  in an interview in mid-October. The                                 based  or  EBOC  [earnings-before-own-                  firm — now headquartered in Waltham,                                ers-compensation] based.”                  Massachusetts,  and  San  Diego  —  cur-                              What Commonwealth is “trying to do                  rently has more than 1,000 employees.                               is really build deeper integrations into                    The  move  to  open  the  Cincinnati   to launch Marketplace next year to help   our bigger practices to help them run                  base is part of a multi-prong strategy   advisors with recruiting. The platform   better and grow faster,” Bloom said. To                  to  “keep  growing  and  making  sure  we   aggregates advisor profiles and hiring   date, there’s been “maybe a half a dozen                  provide great service to our advisors,”   needs and then finds matches for them.   practices we’ve invested in, and there’s                  said Bloom, who helped the firm stage   The  Commonwealth  team  will  also   several more in underwriting now. We’ll                  its national conference in mid-October   make introductions, as well as provide   take up to a 40% stake” and will be                  near Denver.                      support and financing for dealmaking.   “staying in a minority position.”                    It also stands in marked contrast to the   This entails connecting Commonwealth   The  Private  Client  group’s  suite  of                  office closures and layoffs announced   financial advisors and advisors not yet   enhancements aim to help advisors                  by other industry players over the   affiliated with the firm as part of a new   address the complexity of HNW inves-                  past  few  months.  Charles  Schwab,  for   recruiting model, it said.  tors,  Commonwealth  said.  Resources                  instance, is in the process of laying off   Business  Solutions  is  also  adding   will include lending solutions, legacy                  some  2,000  employees;  it  closed  five   options  to  its  Entrepreneurial  Capital   planning, tax management strategies                  offices in October and shrank the size   program, which was launched last year.   and concierge services such as book-                  of six facilities. Envestnet and Orion   The effort includes more types of fund-  keeping, performance aggregation,                  Advisor Solutions recently cut jobs, as   ing via a minority investment in advisor   cybersecurity and health care.                  did Hightower.                    businesses. Commonwealth will provide   In 2024, Strategic Retirement Solutions                    Commonwealth  also  said  recently   capital in exchange for a percentage of   will provide additional support to advisors                  that it will roll out several product and   the firm’s earnings on an active or pas-  who want to do more business in defined                  service upgrades next year that focus on   sive basis, it said.     contribution plans. A bundled 401(k)                  key areas for advisor growth: high-net-  “As  far  as  Entrepreneurial  Capital   solution for small and midsize businesses                  worth clients, mergers and acquisitions,   goes,” transactions are done “on more   will be run by the firm’s PlanAssist team,                  and equity funding. The enhancements   of a passive basis where we’re taking   which handles fiduciary services, includ-                  will “build out already comprehen-  equity  positions  in  advisors’  practices,”   ing selecting and monitoring the plan                  sive product portfolios” in its Wealth   Bloom  explained.  “Generally,  they’ve   lineup and quarterly reporting.                  Management  and  Business  Solutions   been revenue conversions. They’re   High-net-worth  clients,  defined  as                  groups, according to a statement.  based on earnings, and then we just con-  those with at least $5 million in assets,                    The  Business  Solutions  group  plans   vert it to revenue.”     now represent about 1% of households                                                                                           December 2023 Investment AdvIsor 37","rIA leSSONS \& leADerS                          served by the firm’s 2,100 affiliated   study Zooms in on Asset-Growth Issues                  financial advisors. These clients, though,                  account for nearly 19% of total assets on   Wealth management firms brought in   to no impact on profitability.                  Commonwealth’s platform.          fewer assets last year than they have   the size and frequency of fee dis-                    Commonwealth is also seeing success   in recent history: Organic asset growth   counting also increased in 2022, with                  with PPS  Select, its  in-house turnkey   was under 4% in 2022 — down from   70% of firms with less than $1 bil-                  asset management program, Bloom said.   8.2% in 2021, according to Fidelity   lion Aum offering discounts. Among                  Looking at data from 2018 to 2022, it   Investments’ 2023 rIA benchmarking   firms with more than $1 billion Aum,                  found that advisors who used its TAMP   Survey. Independent registered invest-  89% offered discounts. However, fee                  “in a meaningful way grew 700 basis   ment advisors were challenged by infla-  schedules remained flat, which further                  points faster per year than those who   tion and market volatility, the research   impacted organic growth and profitabil-                  didn’t,” he explained.            found. these factors led to a nearly 40%   ity, Fidelity found.                    “I think you can attribute that to just   decline in assets under management   the firm recommended rIAs review                  the time spent doing asset allocation,   from both new and existing clients.   their books of business and rethink                  fund monitoring, fund selection [and]    While firms tried to offset the impact   offerings and service based on client                  managing around systematic withdraw-  of market headwinds on profitability   segmentation. Advisors who outsource                  als,” Bloom explained.            by focusing on bringing on new clients,   investment management save roughly                    “What was particularly interesting is   most of them acquired smaller clients,   nine hours per week, which they real-                  we segmented the users of the service,”   Fidelity said. Assets from new clients   located to tasks like financial planning,                  he added. “Not only did they grow 7%   only contributed to a third of organic   client relationship management and                  more per year … [but] the best advisors   growth activity and did not not translate   business development, according to the                  were the highest users of this service.   to higher Aum. Instead, each advisor   poll of some 3,550 advisors (which took                  And those who used it grew the fastest.   ended up serving more clients on aver-  place from mid-April to early July this                  So it was a pretty fascinating thing.”  age, putting a strain on staffing with little   year). —Ryan W. neal                    Creative Planning Buys Mesirow’s                                    it  acquired  Kistler-Tiffany  Advisors  of                                                                                      Berwyn, Pennsylvania, which has seven                  $13B Corporate retirement team                                      financial advisors and $1.38 billion of                                                                                      assets under management.                      he group works with more than 350   Pohlman,  Vince  Allegra  and  Chuck   In  late  August,  Creative  Planning                  Tplans and is based in Chicago.   Lawless, the Chicago-based team is rec-  struck a deal to buy the former United                    RIA  Creative  Planning  says  it  has   ognized  by the National  Association of   Capital business from Goldman Sachs.                  bought a corporate retirement advisory   Plan Advisors (NAPA) as a top defined   The firm announced it was forming                  team  from  Mesirow  that  works  with   contribution plan advisor.  a “multibillion-dollar” strategic cus-                  over 350 plans with roughly $13 billion   “Our primary goal is to partner   tody relationship with Goldman Sachs                  in assets.                        with plan sponsors and their employ-  Advisor Solutions  a month  earlier.                    Creative  Planning’s  Retirement   ees to drive positive outcomes by pro-  —Janet levaux                  Services Practice now services about   viding  innovative  solutions  and  best                  $137 billion in assets under advisement.  in class client service,” Dermenjian                    The  Mesirow  team’s  “commitment   said in a statement.          Advertisers’ Index                  to tailoring financial solutions while   “Joining Creative Planning allows us                  championing social responsibility aligns   to deliver a new set of products, solu-  BRIGHTHoUsE .............................................. 3                                                                                      brighthousefinancial.com                  perfectly with our values,” according to   tions and technologies to our current                  Creative  Planning  CEO  Peter  Mallouk.   and future clients, and we’re excited to   Jackson national Life Insurance Company .... 11                  “They are well-equipped to address the   be part of one of the largest independent   jackson.com                  retirement needs of plan sponsors, plan   RIAs in the country,” he added.  MFs ................................................................ 5                  participants, investors and non-quali-  Overland  Park,  Kansas-based  mfs.com/silverlining                  fied plans.”                      Creative Planning’s assets topped $245   state street Global Advisors ......................C4                    Led  by  David  Dermenjian,  Chris   billion as of July 1. Earlier this month,   www.ssga.com                  38 Investment AdvIsor December 2023 | ThinkAdvisor.com","Gain Your Competitive Edge                           Join ThinkAdvisor’s online community and get exclusive                 access to vital news, analysis, market trends, practice                  management tips, compliance updates and portfolio                  strategies from our trusted experts. Plus, your membership                 includes discounts on our events, products and services.                  Our goal is simple—serve you better and help you grow                  your business!                                                                  Get Started Now                    Visit ThinkAdvisor.com and become a member today!                            IA_Full Page Ads_December_2023.indd   39                                                              11/9/2023   2:24:55 PM","cOmPlIANce cOAcH                   By Thomas D. Giachetti                      seC Highlights exam Priorities for 2024                    examiners will review how advisors mitigate conflicts of interest.                          he Securities and Exchange                                    rates. This may include private funds                        Commission’s   Division   of                                  experiencing poor performance, signifi-                  TExaminations recently released                                     cant withdrawals and valuation issues,                  its 2024 priorities, identifying the key                            and private funds with more leverage                  risks and topics for the coming year.                               and illiquid assets.                  The  SEC  publishes  these  priorities  to                            • Adherence  to  contractual  require-                  encourage firms to focus compliance                                 ments  regarding  limited  partnership                  efforts on these areas.                                             advisory committees or similar struc-                    The below is not an exhaustive list                               tures, including adhering to any contrac-                  of  what  might  be  focused  on  during                            tual notification and consent processes.                  an examination. Entity history, opera-                                • Accurate  calculation  and  alloca-                  tions, services, products offered and                               tion  of  private  fund  fees  and  expenses                  other risk factors are all within scope.   Critical  compliance  should  also  be   (both fund-level and investment-level),                  I sat down with colleague Thomas   centered around compensation arrange-  including valuation of illiquid assets,                  Kellerman to learn more about the   ment assessments focusing on: (1) fidu-  calculation of post-commitment-period                  SEC’s announced priorities.       ciary obligations of advisors to their   management fees, adequacy of disclo-                    Advisors must be aware that invest-  clients, particularly with respect to the   sures, and potential offsetting of such                  ment advice regarding complex, illiquid   advisors’ receipt of compensation for   fees and expenses.                  and unconventional products will be   services  or other  material payments   • Conflicts,  controls,  and  disclo-                  scrutinized as well as advice suited for   made by clients and others; (2) alterna-  sures regarding private funds managed                  older investors saving for retirement.  tive ways that advisors try to maximize   side-by-side with registered investment                    Also, processes for determining that   revenue, such as revenue earned on cli-  companies and use of affiliated service                  investment advice is provided in cli-  ents’ bank deposit sweep programs; and   providers.                  ents’ best interest will be reviewed.   (3) fee breakpoint calculation processes,   • Compliance  with  Advisers  Act                  Examinations will address how advi-  particularly when fee billing systems are   requirements regarding custody, includ-                  sors mitigate conflicts of interests and   not automated.           ing accurate Form ADV reporting, timely                  allocate investments to certain accounts,   Attention will be paid to safeguard-  completion of private fund audits by a                  such as wrap fee, non-taxable and bro-  ing assessments of advisors’ controls   qualified auditor and the distribution of                  kerage commission.                to protect clients’ material non-public   private fund audited financial statements.                    In particular, examination focus will   information, particularly when multiple   All  registrants  should  be  aware that                  include marketing practice assessments   advisors share office locations, have sig-  the compliance date for recently adopt-                  for whether advisors have: (1) adopted   nificant turnover of investment adviser   ed rules shortening the standard set-                  and implemented reasonably designed   representatives or use expert networks.  tlement cycle for most broker-dealer                  written policies and procedures to pre-  There will also be disclosure assess-  transactions to one business day after                  vent violations of the Advisers Act and   ments to review the accuracy and com-  the trade date is May 28.                  the rules thereunder including reforms   pleteness of regulatory filings, including   Regardless of the type of advisor,                  to the Marketing Rule; (2) appropriately   Form  CRS,  with  a  particular  focus  on   cybersecurity,  crypto  assets  and  their                  disclosed their marketing-related infor-  inadequate  or misleading  disclosures   associated products and services, and                  mation  on  Form  ADV;  and  (3)  main-  and registration eligibility.  anti-money laundering programs con-                  tained substantiation of their processes   Thomas further advised that the SEC   tinue to be a perennial SEC focus.                  and other required books and records.  will be looking at the following when                    Marketing  reviews  of  disseminated   reviewing private fund advisors:  Thomas D. Giachetti is chairman of the                  advertisements (hypothetical perfor-  • The  portfolio  management  risks   Investment Management and Securities                  mance, third-party ratings, testimonials)   present when there is exposure to recent   Practice Group of Stark \& Stark. He can be   Adobe Stock                  will continue to take place.      market volatility and higher interest   reached at tgiachetti@stark-stark.com.                  40 Investment AdvIsor December 2023 | ThinkAdvisor.com","Get the Right Articles at the Right Time:                                               inkAdvisor.com                                We’re making it easier than ever for you to stay abreast of best                           practices and developing stories so you can grow your business.                              • A focus on practical content and critical topics                            •  Enhanced coverage of individuals and companies who are                             succeeding \& regulations that impact your business                            • Story recommendations tailored for you                                                          Visit ThinkAdvisor.com Today!                                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